Q2 20/21

Nov 6, 2020

Thanks, Faizaan. Good afternoon, everyone. And on behalf of Axis Capital, I welcome you all to the Prolite Industries Q2 FY 'twenty one Earnings Conference Call. We have with us the senior management of the company represented by Mr. Bharat Puri, Managing Director Mr. Apurva Parekh, Executive Director and Mr. Pradeep Menon, CFO. So with this, I'll just like to hand over the call to the management for opening remarks. Thanks, and over to you. Good afternoon, everyone. Thank you, Anand. I'll begin with a summary of the business and financial performance for the quarter and half year ended thirtieth September twenty twenty for the stand alone business. There has been sequential improvement in demand conditions during the quarter. Rural and semi urban areas recorded double digit growth. Performance in metros while improving sequentially have still to reach pre COVID levels. Overall, consumer and BAZA segment returned to growth reaching at pre COVID levels in most geographies. Growth was healthy in construction chemicals and DIY products. B to B segment continued to face headwinds. However, it showed signs of recovery in the latter part of the quarter. The profitability for the quarter was aided by benign input costs and strong cost optimization measures. While we are seeing signs of input costs hardening, we remain cautiously optimistic on steadily improving demand recovery. Our plants are operating at a capacity utilization of approximately 90%, and operating efficiencies of our warehouses have been impacted on and off. On third November two thousand and twenty, the company has completed the acquisition of 100% stake in Huntsman Advanced Materials Solutions Private Limited, HamSPL, for a cash consideration of approximately rupees 2,100 crores excluding customary working capital and other adjustments. HAMSPL manufactures and sells adhesives, sealants, and other products under well known brands such as Aerldite Araldite Carpenter and Aerosene. Now moving to financial performance. Net sales grew by 3.7% with underlying sales volume and mix growth of 3.6%. This was driven by growth of 7.4% in sales volume and mix of consumer and bazaar and a decline of 7.2% in sales volume and mix of business to business b to b segment. Net sales for the half year ended stood at 2,388 crores and declined by 28% over the same period last year. Material cost as a percentage of net sales is lower by 283 basis points over same quarter last year and 200 basis points versus previous quarter. Due to availability constraints, our major raw material, vinyl acetate monomer, VAM, spot prices have moved up and are have already reached the $900 mark. Consumption cost for quarter two twenty one of VAM is approximately $7.65 US dollar per ton as compared to US dollar $9.00 1 in quarter two twenty. Going forward, as I said earlier, we see this cost increasing. EBITDA before non operating income at INR473 crores grew by 35% over the same quarter last year on account of lower input costs and advertising and sales spends. EBITDA for half year ended stood at 570 crore and declined by 26 over the same period last year. Profit before tax and exceptional items at 455 crore grew by 22% over the same quarter last year. PAT at 339 crore grew by 5% over the same quarter last year due to tax reversal in the prior year with reduction of corporate tax rate. On a like to like basis, FAT grew by 27%. Consolidated performance numbers, net sales at INR1857 crores grew by 3% over the same quarter last year. EBITDA before operating income at INR514 crores grew by 39% over the same quarter last year on account of lower input costs and lower advertising and sales promotion spends. About subsidiaries performance, international subsidiaries have reported double digit constant currency growth during the quarter. Domestic subsidiaries continue to witness challenging business environment due to the pandemic. However, signs of revival are observed towards the latter part of the quarter. We are encouraged by the quarter two performance. However, we remain cautiously optimistic on account of the risks associated with the ongoing pandemic. Our focus would be to continually drive volume growth via investment in our brands, in sales and distribution, and in consumer relevant innovation. That completes the statement from our side, and I would like to hand over to Anand and the organizing team for the questions. Thank you very much. We will now begin the question and answer session. Session. The first question is from the line of Avnish Roy from Edelweiss. Please go ahead. Yes. Congrats, sir, on great numbers and the recent acquisition. So my first question is on Huntsman. So what are the thought process behind this? Huntsman is also into adhesive cement, and you are obviously the dominant player there. So is it to get essentially lead over any other player entering if someone else would have acquired? That is the main reason, or it adds to your distribution or brand or product technology? So that is the first question. Yeah. So I'll, obviously, give it a response, and I'm sure Apoorva will also chip in. So I think in any kind of, you know, consumer business, when we look at a a business, there are couple of elements to look at. One is the kind of the brand that it it has, the business model, and the kind of distribution opportunity. So we have looked at all those elements. If you look at Aradite, which is the brand, you know, as part of the announcement acquisition that, you know, we've got in the process for the Indian Subcontinent, this is has leadership position in the epoxy of this segment. And, you know, this is essentially very, high performing adhesives used in marble, stone, metal, and molding purposes. And, therefore, with the leadership position that the that company has and the opportunity to improve distribution in the geographies given our you know, the way we operate, the Pedalite model, connect with users and all that, These are the two primary elements. And, of course, it is the in terms of the business and the nature of the the the particular business that we have, it is in a in a shape which is obviously in the right box in terms of profitability, in terms of opportunity to grow from a distribution per perspective, and these are the reasons why we have looked at that brand. Apurva, you want to just chip in on this? Yeah. I think you have said you've covered most of the points. But, Abhish, you know, aryldite is obviously an iconic brand and extremely well known brand in its particular segment. And, you know, acquiring aryldite, you know, completes our, you know, adhesive portfolio in some manner. We were always present in epoxy adhesive for many years, but Adalite was the market leader. So with acquisition of Adelite Adelite, we have now a portfolio of very strong brands, including FERVICOL, FERVIQUIC, MCL, and now Adelite. So the acquisition, the main purpose was this. It was a very, very strong brand with a very strong position in epoxy adhesive set. So that was my question that now in epoxy, you will have your own brand in Aeldite. Similarly, aldite carpenter or Aerosene, you will have your own brand. So how does the brand architecture work in the medium, long term? You'll retain both brands, or there will be a a price lettering which will distinguish between the two? Or region wise, there could be some difference. I see. The the overall strategy and business plan will evolve over a period of time. But, generally, in all brands that we acquire, we maintain the brands, and each brand has its own position in our portfolio. So, certainly, we will we will maintain and strengthen aldite and the the related brands like aldite carpet. But the exact positioning of that and and and how exactly we will grow them is something which we will develop over the coming months. So just two last small follow-up from here. So will there be a royalty which is required to be paid? And, similarly, you have the trademark license for Middle East, Africa, ASEAN. So in these geographies, already is present, or you would need to go there and tap into your own distribution which might be there? So aldite plant in Indian Subcontinent has been assigned to the entity which we are acquiring, so no royalty will be payable. As far as license goes from Middle East, Africa, and ASEAN, you know, it it is a business that we will have to study and then decide how to grow. It's it's not a very large business, but but but I'm talking about the segment for which we have got licensed. And we will have to assess that market and and then grow it, and, you know, we will have to determine the appropriate distribution network for that. Right. My second and last question is on your waterproofing businesses. So there, this quarter also, the services business got acquired. There, this quarter also, there is a big dip, obviously, q one or the washout. So, Nina, first of all, talking also. What is the way forward there? What what are the issues if Because this was an acquisition done a few years back, and now suddenly things are looking quite different from your main business and your international business, etcetera. So is there any specific issue here, or it's more of a competition or efficiency spend? Pradeep, you wanna talk about it? I'll I'll it's just fine. Go ahead. Yeah. Yeah. I I'll go ahead. So, you know, see, there are two, three things here about Neenah Percept. One is that, as you rightly said, it's waterproofing services. But in a way, it is one entity of ours which has a absolutely direct link with the real estate sector and the performance of the real estate sector. Now real estate sector, even prior to COVID, was going through significant challenges, and those challenges have actually got accelerated during the last six to seven months. Having said this, while the quarter two performance, what you are seeing obviously is is the is the performance in terms of revenue growth and profitability, the positive side that we are seeing is that there has been sequential improvement in performance of that entity even during the quarter. And that is something that is giving us, you know, certain, you know, much more confidence going forward. Having said that, it is too early to say whether, you know, things are going to be a complete turnaround. It will be linked with the overall sort of performance of the real estate and the speed with which that sector recovers. While the see, the consumer and bother segment, etcetera, you've seen the recovery, you know, in that segment. We are not obviously seeing the same pace of recovery there, and therefore, we'll it's still a watch out. Yes. Yeah. But, essentially, this is new homes. How much percentage of sales is to new homes from for Nina? Apurva, you want to just state this? Yeah. Yeah. Virtually, for Nina, Percept, the entire business is new homes. See, Nina Percept, their business model is to provide waterproofing services largely for new projects. So there may be some repair and rehabilitation work, but their work is related to largely new buildings, new commercial complexes, infrastructure. So significant part of their revenue is from new construction activities. And just to, you know, add, you know, of course, you know, this segment is going through very difficult time, but Nina Percept is a strong market leader in this segment. Of course, this segment is stressed, but if you go back to, know, we had a very good performance in 1819, nineteen, twenty twenty had difficulties ending the year with corona. And, you know, of course, this year, there has been a lot of difficulties. But, inherently, it is in a it is in a unique strong position. It is a market leader in segment where people require specialized water cooking services, for for large projects. And, it has very good synergy that's pretty light. So we are hopeful that as economic conditions improve, as the construction activities pick up, this business should also start performing better. Thank you. Mr. Roy, we request that you return to the question queue for follow-up questions. The next question is from the line of Latika Chopra from JPMorgan. My first question was again on aryldai. If you could elaborate a little more on what kind of revenue growth profile, what kind of margin profile has this business seen so far? And what kind of revenue or cost synergies do you anticipate here? Any quantification if you could share that will be useful? Yeah. So in our press release, we had already covered the calendar year performance of the brand. It was about 200 crores for the that business in 02/2019. As far as the synergies on revenue and cost is concerned, I think it's a bit too early. Obviously, we have some internal thoughts and things, but it's too early for us to really talk about it in a in a public forum for the simple reason that we need to take some time to understand the business. So we believe that in in about, you know, within three to six months time, we'll be able to come back with a clearer picture to, you know, the external investors on where we see the opportunity. At a at a very principal level, the strength of Fidelight is, of course, you know, deeper distribution and and penetration across markets and across geographies. So, obviously, we see some opportunities there, but it's too early to call that out at the moment. Amita, just to just to add to it, you know you know, we know obviously this business very well. You know, you know, Adeltais business with its, you know, with its distribution structure or with its end user profile, we understand this segment well, and we have also been a participant in epoxy adhesive for a very long period of time. So we understand this segment well. We we have good understanding and expertise in terms of both distribution and end user activities. So we believe that all of this should help us to accelerate growth of this brand. And in addition, you know, we we we did the valuation at both reasonable revenue and EBITDA multiples. So we are hopeful that, you know, as we as we accelerate the growth, this should be beneficial to the company. Sure. What I was actually looking was for any kind of revenue growth in the past that you could share, but probably with your distribution footprint and initiatives, maybe, you know, that growth might not be relevant. Yeah. Past year growth is not relevant and also as you know, the last three, four years in India also has been through a little sort of a different kind of a situation in India where the growth rate of almost all big companies were impacted. So I would not really look lock a lot at last three, four years. I think going forward, you know, the with the value that we will add, we are hopeful that we can accelerate the growth rate. Sure. And my second question was, you know, you touched upon the waterproofing services segment, but, there has a of focus on initiatives to scale a presence in the other growth and pioneer categories which you outlined over the last few years, like flow coatings, wood finishes, styletters, joineries. How do you assess your performance in these categories so far versus your own internal benchmarks and will exclude the COVID impact here? And how should one think about growth for these segments going forward? Pradeep, you were saying something? Should I answer that? No. Please carry on. So I think, Pradeep, amongst the segments that you talked about, some of the segments are doing quite well. For example, tile adhesive, you know, with our brand, Ross, and joinery adhesive, you know, where we sell a variety of high end adhesive for joinery market. Both of these segments are doing quite well. You know, we have we have focused hard on developing the right products, building the route to market and doing other activities. So so we are good in those two segments. The other two sec other segment that you talked about was Floor Coating. That was the acquisition which we did of a company called Sippy. Now this company, like Nina, has is is impacted somewhat because of the new construction related activity. Lot of their business is into into new construction, including, you know, you know, flooring for various projects, parking lot, the large buildings. So that segment is impacted. But again, like Nina, CP is also in a big position as far as market position goes. And we believe that as market improves and some of our initiatives take shape, we should be able to improve the performance. So that is on CPE, but otherwise both the tile adhesive and joinery business are doing well. There is some COVID impact, but both businesses are doing well and have started to recover very well. Sure. Thank you so much. Thank you. The next question is from the line of Arnav Mitra from Credit Suisse. Please go ahead. Yes. Hi. Thanks for the opportunity. My first question was on you mentioned that the India recovery been led by waterproofing and DIY. So I wanted some sense on how the woodworking and data business is doing. Is that still relatively weaker because of the higher linkage to real estate? And we we do hear that there is a pickup in the real estate market. A lot of registration that is in the bigger city starting to happen. So are you seeing trends where this good working additional segment is now starting to see good improvement? Yeah. Thank you for the question. So as I said in the opening remarks, we are seeing a sequential improvement in demand conditions during the quarter, and, you know, it's like every month is has been better than the previous one. And that is also true for the woodworking adhesives. And we are seeing a similar trend in those segments as well. Having said that, you know, in terms of, you know, the what was the second part of your question? Whether you're seeing any other trends? What was the second part? No. I was talking about the real the the top of potential pickup in the real estate market. Any any sales type you're seeing that is happening in the Rajasthan? Yeah. So so, again, real estate, it's too early to really take the call, you know, because in the in the whole process. But, certainly, from a demand situation, we are seeing things, you know, which you know, where there was more demand or there was, you know, hardly any offtake. We are seeing that improvement in the quarter. There are there are certain projects which were not which were sort of stopped. There could be also frankly speaking, there is also an impact of q one where there was no offtake at all. And then when the things open up, there will be some bit of pent up demand also coming through. I think that is something we have to be cognizant of. But having said that, we are not seeing any very, very clear signs of a real estate pickup or a recovery too early to call that out. Okay. My my second question was on margin. So couple of questions here. One is the RAM hardening despite crude being low. Is it a short term supply issue that you feel is there, or is there is this now that prices are going in your sense, it is not driven by any supply kind of a issue right now? And second is the other expenses which have seen a big reduction this quarter year on year. How much of this is kind of a permanent reset of your cost structure due to cost efficiencies, and how much would you say would come back in the due course of normal business? Yeah. I think that's a good question. So I think I on the VAM, you see, I think when COVID happened, there was a sort of a sudden abnormal drop in the prices of VAM in terms of spot prices. We are seeing the cost going back to, you know, the pre COVID levels. So that is really what is happening. We are not saying there is an inflation over last year or something. At $900, you know, last year, similar time, the the RAM prices were about $900 as well. So it is more a movement from the current low going back to the previous situations. Sustainability or otherwise of these prices, very difficult to say that. There have been certain force majors, lockdowns of capacity in parts of the world where the production is happening, which has impacted it. Now whether all of that will come back, supply will come back, prices will come back to lower levels due to lower crude, very difficult to predict at this stage. But, you know, we are right now operating on the assumption that the prices have gone up, and, obviously, we need to run our business as a result. So there will be an impact going forward from the higher prices. As far as other expenses are concerned, there is some, you know, some element of cost control, which may stick, for example, travel and so on because, you know, all of the the the the original way of operating, you know, and the the physical meetings and the travels have not gone back to the same stage as it were pre as it happened pre COVID. However, the bigger, you know, impact is coming from the lower amount of spends that we've had in the advertising and marketing space, and that will obviously come back now. We want to invest behind both advertising and sales promotion going forward to drive volumes. So lot of that drop in costs will not be sustainable. It will come in in the coming quarter. Okay. Thanks. That's it from my side. All the best. Thank you. I just want to add one more point before, you know, we move to the next question. We have always said that our you know, we like to operate in a EBITDA range of between, let's say, around 21 to 24%. So that's the kind of range we want to operate. Obviously, this is well above those ranges. And we see an opportunity to invest behind the brands, which we have not been able to in the past few months. So that and and, of course, the cost coming back. Thank you. The next question is from the line of Jay Doshi from Kotak Securities. Please go ahead. Hi, thanks for the opportunity and congratulations on a great quarter in context of the environment and acquisition of Red Light. I have a couple of questions on RedLight and I know you've answered some of it. How big is epoxy adhesives market in India? And can you give us some color whether it is under index versus polyvinyl adhesive and rubber based adhesive as compared to other developed markets? And if you can give some idea about distribution of arylite today, what and how does it compare versus your distribution? That's my first question. And I have one more which I'll ask later. Yeah. Apul, why you want to take this? Yeah. So I think you asked three questions in that, but I think first, I'll address about the distribution. Certainly, the distribution reach of PD LIGHT is much higher. You know, as as even, you know, Huntsman in their press release said, you know, they could bring it to a certain level, and they expect us to take it forward with our distribution reach. So clearly, PD LIGHT as a company has a far deeper distribution distribution reach. Reach. We don't have Any color you can give in terms of the towns that they reach or any No. No. No. As you know, this kind of information is not shared during the acquisition stage. But, you know, generally, from our idea, our distribution reaches far more deeper. They they will have direct and indirect reach, but our direct reach is far greater. But they will have much greater clarity on that as we as we take hold of this particular business. As far as usage and penetration, you know, aldehyde like PVA, the epoxy adhesive as a category has similar kind of penetration level, I would say, like PVA because, you know, it has been in market for a long period of time. And there is a widespread understanding and usage of this as a product category. What was the third question? The market size. Yes. The market size, you know, it it it is difficult, you know, to estimate. Like, in PVA, also, we we sort of shy away from saying what is the estimated market size, you know, because, you know, if if there is there is no official or there are no well known figure to state that. But aldehyde had good market share. I know of the I would not again like to say what is the kind of market share, but aldehyde had a fairly large market share. So you can derive based on the aldehyde here, you know, as a company, the sales figure that we have shared. But it's not a market. It is not as big as PVA kind of a market, but it's a fairly sizable market. Just a small one. Would would this need competition commission approval, or it won't be required? No, no. The transaction is already closed. So transaction is already completed. So it did not require any regulatory approval and transaction is already completed. Understood. Got it. Thank you so much. Thank you. The next question is from the line of Navi Mehta from Macquarie. Please go ahead. Hi, sir. I had just on the margin side for Huntsman, just wanted to understand how should we look at the your thought process on their EBITDA margins? Is there scope for expansion or is it going to be largely sales driven that you are initially thinking? I know a lot of it might change, but I just wanted to provide your thoughts first thoughts on how are you kind of looking at this acquisition, sir? Yeah. So I'll give it a short answer of approval of additional points. So I think one is that it is a profitable business. So I think the focus at this moment is to make sure that, you know, although we identify the opportunities on growing the business, the profitability is not really the number one, you know, agenda as far as we are concerned. Having said that, if as we go along, we identify any opportunities of optimization of cost, we'll look at that. But driving distribution and, you know, operating and bringing the Pedalite we are working, that's the kind of focus that we have. Okay. So what I'll ask you is what I'll I would like to add is, you know, Adalite business already has very healthy margin. But in addition to that, we believe that there is a there there will definitely be lot of cost and revenue synergy. You know, Araldite is a very, very strong brand. So there there is multiple ways in which we can, you know, use the brand there to grow the business. We can potentially add new products. We will expand distribution. So a number of initiatives are possible because this is in our product category and segment, which is very well known to us. So it's a number of ways. So but the primary thing would be to grow the top line you know, to accelerate the growth rate. And, you know, once we do that, it would result in overall higher EBITDA. But as far as profitability goes, it is a very profitable business. So so that is something which is good. And our our primary focus would be to the accelerate the top line. Sir, and who would be the next biggest competitor for after Alight? You see, in the epoxy adhesive segment, there is, you know, Axtral and Pedialyte. Pedialyte would be so Axtral and Pedialyte are the other two competitors other than Paralyte. It it would probably be Resinova after that only. Right, sir? I mean, our Resinova by Estral. Resinova is owned by Estral. So that is what I'm Yes. And, sir, secondly, I I There are there are number of other number of others like in like in the PVA, also a number of other regional and other players. So there are large number of players in any adhesive category. And so epoxy adhesive is also similar, but top three are likely to be, you know, arylite, astral and pyridite. Okay, sir. Okay. And sir, just to add a few bookkeeping questions. One was on the reduction in inventory. I just wanted to understand, was this largely raw material rate or was there any finished code or was there any is this sustainable this inventory reduction that we have seen on Y o Y as well as 4Q from versus 4Q? Yeah. So, you know, typically, you know, the inventory numbers this quarter versus, let's say, or even previous year may not be strictly comparable because we've had if you just look at from a balance sheet perspective, you look at March, we did have a lockdown where sales were, you know, were were not there for last ten days of the month, and therefore, inventories were higher. So, you know, that's strictly not comparable. Having said that, the levels of inventory that we're having in and around these levels are sustainable. Okay, sir. And lastly, sir, I'm the van price data. If you could kind of give me 1q, 2q, as well as current, sir, I missed that. I joined late late. Sorry. Yeah. So What? The quarter two consumption was 765 US dollars per ton. Quarter one was $823 a ton and current spot prices are going around $900 Okay, I'll come back in the queue for the other question. Thank you very much, sir. Thank you. Thank you. The next question is from the line of Persi Pantakhi from IIFL Securities. Please go ahead. Hi, good afternoon and congrats on a good set of numbers. So my first question is on the consumer and bazaar products. The sales growth there is quite robust at about nine and a half percent. So if you can give some flavor within that, but, basically, which subsegments are growing faster than average, which subsegments are lagging, and if there's any subsegment which is actually not yet in positive territory. Yeah. So we did give a color in the opening statement, so I'll just repeat some of those points. I think one is we called out from a geographical perspective that the rural and semi urban areas have recorded a double digit growth. This is within the consumer and bazaar segment. We have seen tier two cities sort of the while urban overall is recovered, but the metros are still not yet at the pre COVID levels. But the tier three cities, smaller cities are, you know, obviously come back to positive territory. Yeah. This is from a geographical perspective. If you look from a business business perspective, construction chemicals and do it yourself products, these are the ones where you've had, you know, growth momentum. In fact, this we are also called out in our previous quarter, you know, commentary. So that momentum continues. And there is and even as far as woodworking adhesive is concerned, as I said earlier, that has also gone into a a positive territory, albeit, of course, not at the stay at the same level as the construction chemicals or the DIY. So that's the overall color of the growth. So, sir, construction chemicals is just correct me if I'm wrong. It's mainly the waterproofing segment. Right? Yeah. So we've got tile additives as well in that. So together but waterproofing would be a fairly large part of the constructive cam construction chemicals. And you mentioned earlier that I mean, in some respects, it is linked to the real estate cycle and the the real estate. There's no sign of sort of revival yet. So then how do we tally these two statements, and how do we sort of make sense of this growth in construction chemicals? What is really driving that? Is it is it not linked to new asset creation, and is it just people redoing their houses, which is driving the growth, or what is it? Yeah. So there is there are two, three things playing out playing out here. One is, typically, these, you know, waterproofing, there is a significant amount of work done in q one before the monsoons. Because q one was a locked down kind of condition, there was a lot of, obviously, things in terms of demand which slipped in from q one into a subsequent period. And once the monsoons retreated, obviously, the demand has come back. What part of the recovery or what part of the demand is coming exactly from new construction or from repairs and renovation is is difficult to exactly pin pinpoint. It could also be certain constructions which are ongoing where, you know, work has stopped and now recommends. So difficult to put a finger on it, but that's the way you have to read this. Let's see. Add to that, Pradeep. Sorry Just to sort of to help you, you know, reconcile. See, when we look when we talk about real estate, we are talking about this multistory large projects in bigger cities, metros. Now that segment, particularly, that segment is impacted. And when we look at NCR, Mumbai, that kind of market was multi storey large construction. So that is what typically people talk as real estate, and that segment is impacted, and that is showing in in in the lower growth or decline in sales of our subsidiary like MENA. A large amount of construction in India is one story, two story construction, which happens outside of metro, and that is a much larger share of the market. It it is a very significant share of the market in terms of if you see construction, cement consumption, and everything else. So that segment is doing well. That is not impacted. When we all say what is impacted is this real estate in larger cities. But otherwise, this smaller one or two story construction or construction activities, smaller town or rural area, that is doing well and that is aiding the growth. So I hope that allows you to sort of Very helpful, sir. My second question is on the margin. You did mention that you would like to be within a 21% to 24% band. And right now, this quarter is much higher at, like, 27%. So just wanted to understand whether this reversion to your guidance is something sort of which will happen at some point of time in the future, or is it something sort of more concrete and palpable, which we can see that the reversion can happen within sort of nearer time frame? Yeah. So it's obviously very, difficult to put a number and a month where it'll happen, but I certainly, in the next, you know, six months, within this period, we do see this coming back. As I said, because the input prices have gone up, and that will have an impact on future consumption from a raw material cost consumption perspective, and we are going to start to invest behind our brands in the coming months. You will see that coming back in the next within the next six months. Very helpful. Thanks, and all the best. Thank you. Next question is from the line of Mohit Bhandi from Citigroup. Please go ahead. Yes, sir. Thanks for the opportunity, sir. Just needed some data points on the acquisition. If you could share the twenty nineteen pack number, that would be helpful, and also the current gross block. Okay. I'll start with the gross block. I mean, the you're saying gross block in terms of assets? Yes, sir. Yeah. Yeah. So this entity is having a very, very miniscule amount of fixed assets. The arrangement that this entity has is in terms of tolling. So the the assets hello? Yeah. Maybe there's a picture. Yeah. So I think the they have tolling arrangements, and the tolling arrange that's what the assets are not necessarily in their books, but it is the the assets are in the in the conversion through the conversion cost route. So asset block is not a material number to look at. Coming from a past perspective, etcetera, you know, I I don't know whether we can really have that specific number to share. Suffice to say, as we have said earlier in the call, that it is a profitable business, and, you know, the path would also be, you know, quite a, you know, sort of a healthy set of numbers. That's the number and whatever we had in terms of external communication, we have given in the in the press, you know, announcement. Okay, sir. And secondly, how is the acquisition funded, the 2300? Yeah. The acquisition has been funded from internal resources. As you know, we have a large treasury, and so, essentially, it is through liquidation of the treasury investments. Okay. That's it, Thank you so much. Thank you. The next question is from the line of Anand Shah from Axis Capital. Please go ahead. Yeah. Hi, thanks. Yeah. So just a question on me on the construction chemicals market. I mean, we've seen this sort of a market expanding quite well even in such times, and we've seen a lot of players now, especially in the organized segment, getting very active in this space, especially the playing players. And this time, we are seeing growth all across broad based for everyone. I mean, so, you know, what kind of, underlying drivers are you seeing for this market? I mean, is it now at an inflection point? Is it that all all of these guys are spending a lot and, you are seeing big upticks for categories across? Yes. So yeah. Yeah. Go ahead, Nava. No. Okay. No. I can see. Will not like to talk about things like inflection point or what about what others are doing. But if you know what consistently we have been saying for many years that this is a very large market, and, you know, this is a market where there's a great opportunity to expand consumption, and that is what we have been working at. But, you know, we would not like you know, so we we we believe that and we continue to believe that, you know, this is a this is a large market which requires serious effort to really grow the consumption. And we we have been doing this, and we will continue to do that. But we would not like to comment on the state of the market or whether it's an inflection point or not based on the current quarter or anything. We continue to remain very bullish on this market. We continue to invest in building brand, expanding distribution, introducing new product. You have seen various activities from us in last couple of years, including some tie ups joint venture. So we are very committed to the market. We continue to invest in the market. And we are hoping that this market will continue to grow at increasing growth rates over the coming years. But we would not like to comment on the activities of others or whether it is at some kind of an inflection state. Sure. Sure. Thanks. And just a question for Mr. Puri. I mean, you've always referred to the growth in the pioneer categories within the portfolio. So any comments, especially if you can give one some of the pioneer categories, how they're doing and, you know, sort of a growth plan for the next two, three years? See, we are clearly well positioned in the pioneer category. Some of them are already on the high growth path. If you look, for example, at our styling adhesive businesses, they're already in the high growth part. The others were in, for example, two of them were in factory construction phase, which will be complete by the middle of next year. So absolutely in line with our plans, as we've always said, we will have a set of growth businesses that will be firing for growth today and a set of pioneering businesses, which will start firing for tomorrow. So absolutely online. Okay. Perfect. And then lastly, any new launches that you have done or sort of planned out for the next year within any of the category that are doing well? See, we have an innovation program that runs across each of our divisions. So as we speak, for example, each of our divisions will be rolling out a set of products. For example, we've rolled out a whole range of sanitizers, etcetera, for the trade as well as for our, you know, masons, plumbers, carpenters rather than just you know, we will leave the con the end consumer to the large FMCG companies. So we believe there's a larger opportunity with the trade and, therefore, with our intermediaries. So we have a range of products there. In each of our divisions, we have sets of products. We've got a whole range, for example, of sealants that we've launched under the Favicil brand, which is across divisions. So we have an innovation program that is ongoing. We've recast it in the context of the current, pandemic, but that's an ongoing program. And on a regular basis, we're very clear that about one third of our growth should actually come out of, new products or products under launch. Okay. Thanks for sharing this. Thanks. Thank you. The next question is a follow-up question from the line of Avnish Roy from Edelweiss. Please go ahead. Yeah. Hi, mister Pudi. So congrats to you also in person for the acquisition. So my question is because you also have the FMCG experience, standardized experience, so I wanted to ask two questions related to that. One is all FMCG companies have doubled, tripled their online sales within one year because of the COVID crisis. So how is Spigilite getting for this by bringing exclusive products on online or maybe much higher focus on online, more partnership, maybe even at some stage, your own ecommerce site. So could you elaborate on that? So we've obviously absolutely ramped up online. Remember for us, online is largely in the context of our consumer product businesses. The intermediary led businesses of the large Semicol led businesses currently still don't have an online component even outside India. In these businesses, we've ramped up. We've done very well in the last four months, and we have a set of plans on how to make this, you know, in a sense, an independent large channel. Some of the products, for example, if you look at a w d 40, the online sales has now become significant. Now we're learning from that, moving on. So, you know, in the interest of keeping some of the things confidential for our competition, you will see that for us, this will become a significant channel over the next twelve months. And you would have also doubled your online sales in one year? Sorry? Would you have doubled your online sales in one year, last one year? Much much more than doubled. My second one, again, related to FMCG background. If you see HOL or even maybe I don't know. But HUL, for example, in same product category, we'll have multiple brands. So Huntsman and Tweedlelight, can they also play a similar role? I had asked this question earlier in today's call only, but now my question is more in terms of different price points because they will obviously be competing with each other. So they would need to have a different price point, different proposition. So is that something you'll be thinking of? Absolutely. Get with This is the operator. Sorry to interrupt you, sir. The audio is breaking from your line. Okay, sir. Wait. Let me try and figure out a better location for that. Can you hear me better now? Yes, sir. Please go ahead. So, Savneesh. Absolutely, yes. You know, based on our own consumer goods experiences, we will keep looking at their certain offers which are exclusive for ecommerce, some which we believe for certain audiences may be introduced through ecommerce. So there is a whole set of plans. You will keep watching as we go forward. And, sir, the one question on cement sales and the putty sales for the industry. The cement sales numbers have been also quite decent for the industry and putty sales. You must have seen the paint companies. Most of the growth is coming from putty only. So if you benchmark against those numbers against your own adjacency, how does PIDI Lite compare? Because we don't have the number. That's that's the way reason why I'm asking this question. See, very difficult because, you know, remember, PUTIS is really a commodity business, and it's not, therefore, a business that I would say is, you know, a long term brand building business, as to say, if you are transporting large amounts of calcium carbonate, a little bit of polymer. So I'll leave that aside. As far as we are concerned, as we look at other adjacent businesses, we are clear where we can add value, where we can create brands, and that's where our focus is. We are not interested in operating at the low value end of the market where over time, commoditization will happen. Right. And the last question so, Nina, I had asked questions, but last one follow-up there. So Nina has been struggling because of the exposure to new homes. It's essentially flat only. So why isn't MENA targeting the the stand alone properties, the old properties? Because that's a much, much larger universe. In Mumbai, I see so many players addressing that part. So what is the reason for that? See, that business is not a, what I would say, a margin a high a good margin long term business. So what we are doing with Nina is as real estate is suffering, we're pivoting the business a lot more towards larger corporates. For example, we did the new Kia factory in Andhra Pradesh. We did the Samsung factory in Noida. So what we are doing is we are pivoting the business again towards larger customers, but towards larger customers who are not dependent only on real estate, but are across the whole, you know, what I would say, the larger construction and infrastructure sector. So for example, we've done some tunnels now in Jammu And Kashmir. So we're actually turning the business where there is value, there is technology required, and therefore, there is a long term value proposition. What happens in the repair? And this is it's a commodity business, which is good for the very, very short term, but not good beyond that. Yeah. Thank you. Thank you, mister Poole. Thank you, Parekh. Mister Parekh, Always a pleasure with you, Abhish. Thank you. The next question is from the line of Farhan Amlani from SBI Life. Please go ahead. Yeah. Good afternoon, everyone. I have basically two questions. First is, like, many paint companies, for example, Berger Paints are actually entering the waterproofing space, and they have better synergies. So how do you take the competition from that? And the second question is that what are your future plans? Like, mainly, they'll be inorganic, or you are looking for organic growth opportunities? Thank you. See, I think, firstly, let me just mister Amlani, little exception with you. I don't think Burger has better synergies than us in this business. Remember, construction chemicals is about new construction and repair and renovation. In most markets, construction is 70% of the market, 30 is repair and renovation. Where the paint companies play is in repair and renovation. They largely new construction goes via the steel and cement channel where a lot of the times the paint companies are not present. Having said that, to win in waterproofing, what you require is strong brand, great service delivery, and a great network. Now in all three, remember, we have a ten year lead. So it's I mean, you know, and we've always said that given that, you know, three out of 10 Indian homes do any form of waterproofing, competition will actually help expand the market, which is what is happening. But please remember, in a, you know, in a large marathon, we are at the halfway stage. A lot of these companies, such as a burger, are just, you know, going around the first bend. So we bought. Let's see. Let let them come and participate in the race. And after some months, can ask or after some years, you can ask them the question. The fact is if I look at my last if we look at our last quarter, our fastest growing business is the construction chemicals business. So, you know, if we were getting impacted, then it would not be our fastest growing business. And remember it for us, we are growing at a base much much you know, many times our, in inverted commas, newer competitors. Okay. Yeah. No. Was talking about, like, they have, like, they have an upper hand in painting. No. Painting, yes. But remember paint the painter does not do the painter does repair and renovation. A painter cannot do water moving for a new construction. He doesn't understand it. It is done during the stage of construction. That is 70% of the market. Okay. Thank you. Welcome. Thank you. The next question is from the line of Avnish Agarwal from Prabudas Leather. Please go ahead. The current participant has placed his call on hold. We'll move to the next question. The next question is from the line of Ritesh Shah from Investec. Please go ahead. Hi, sir. Thanks for the opportunity. Sir, first question is, can you break down the transaction value? I think it's $285,000,000 which includes a closing amount of $1.58, and the balance is subject to certain milestones. Can you provide some more color on this? So that's the first question. I'll speak to Abhurva. Hello? Yeah. The transaction value with the question, the breakdown of transaction value? Yes. I think its total is $2.85, which we indicated. If $157,000,000 on closing and the balance is subject to certain milestones. Correct. So 90% is paid upfront, and the 10% is linked to a deferred consideration, which is which is linked to the revenue achievement over the next eighteen months. So 90% of the transaction value has been paid upfront. Okay. And this revenue achievement, can you provide certain numbers over here? Is it, like, something product specific, or how do want to correct? Very simple thing. For any six month period, the annualized sales for any six month period, it exceeds the 2,019 sales figures, then the amount is paid. Okay. Since so how should one understand this? Like, will we be having control of Araldite's retail chain, or how should one look at it? Because No. No. We have bought see, we have bought the entity in India which owns the Aeraldite trademark to India. So they own the Aeraldite trademark to India, and that particular entity we have bought. So so we have, you know, we have we have the control on the trademark in India. We have given trademark license to Huntsman for for certain usage in manufacturing industry. But, otherwise, we are the owner of Adeltai trademark, and we have the full control on the business. Us now is just a mechanism, by which the part of the consideration is paid on a deferred basis. But we are running the business business effectively, day day before yesterday since closing. Okay. So if at top anything, the closing has already happened, and the business is now in our hands. Okay. So if at all the top line doesn't come, we probably get the business at a lower price. Would that be a fair conclusion? That would be a fair conclusion, but that is not the objective. The objective is obviously to accelerate the growth and to pay out the deferred consideration. But because of the current uncertainty, this is how it was structured, which was mutually acceptable to both parties. But the objective, of course, would be to accelerate the sales growth, and that that that would result into payout of deferred consideration. That's wonderful. Sir, my second question is we have a rich proven history on acquisitions and all. I was just thinking about it. Like, we already have Previtide. We already have quite deep penetration, which you indicated. It's one of our core strengths, and we have a solid brand. Then what was the need for Araldite? The Previtide product itself, we could have made it into arylDite or when it comes to market share. So if I'm had to retrospectively look at things, how would you look at it? The reason I'm saying is we have all the ingredients to actually consolidate the marketplace. Then why is there a need to acquire such a brand? Because we are a larger brand when we look at it when we look at things optically. Thanks. I I appreciate that question, Abdulrah. Yeah. Go ahead, Paret. Yes. See, I think that's a great question. I mean, the simple thing is Arundhite is an old established and iconic brand. Now for us to take it will take us a certain yes. Can we win with Fevetite over the longer term? The answer is yes, but it will take a number of years and a great amount of effort. We felt for the price that we are paying for the Arundhite brand, it actually accelerates our leadership in that segment. It gives us a brand on which we believe we can build substantially both from a brand as well as a sales and distribution perspective. So we thought the value works for us, and therefore, we've gone ahead with that. Right? We will still keep our portfolio of brands. In a sense, it now gives us a full portfolio in the one chemistry where we were not leaders. We've become leaders. Otherwise, it probably would have taken us a large number of years to do the same. So, really, what we've done is we bought the accelerated position via the acquisition. Correct. So that's helpful. But, sir, if I had to ask you if if you had to quantify the numbers from a capital allocation decision, like, we have a solid We can easily afford to achieve this equation. But if if one had to look at it from a payback period or from a IRR point of view, what is our internal thought process when it comes to something inorganic or or or organic taking this Huntsman transaction into perspective? Thank you. You take the Huntsman transaction. We are a conservative management. You know, a lot of these now, you know, what I call your cousins in private equity are paying very large prices. But we believe we work with our internal benchmarks so as to say where we can generate a decent IRR, we can generate, in our view, good revenue and cost synergies. If all of that adds up and therefore it makes us substantial difference to us and is much higher than, you know, our IRR benchmark, that's when we go ahead. And that's the formula that has worked for us over the number of years. If you look at our successful history on acquisition, that's our formalized. There is no secret to it, and we believe the same applies to this Haraldite acquisition. Okay. Okay. I'll now join by the queue. I I have more questions. Probably, I'll I'll follow-up with a separate call. Thank you so much. Welcome. Thank you. The next question is from the line of Avnish Agarwal from Prabhudas Liladhar. Please go ahead. Yes. Hi, sir. A couple of questions mainly on the Huntsman acquisition. The first one being that, like, the earlier caller also talked about the kind of money which we have paid, and we already have a presence there. So is the size of Arendite bigger than the sales which we have got in this proxy and excess? That is my first part of the questions. Secondly, is it a bit of margin accretive for PD Lites? And thirdly, what will be happening to this intangible assets or goodwill? Will PD Lites be writing it off in the balance sheet or will they remain assets? All yours, Abhurva. Yeah. I think, you know, the first question you said was in terms of the size, or what was the first question? So we are already present in line of senior LSA. So is the size of Ferralyte bigger than our existing presence over there? Yes. Of course. As we said earlier, Araldite is a strong market leader, iconic brand, and a strong market leader. So the sale of Araldite is higher than our brands in this segment. Yes. It is. It is much higher. Okay. And, sir, is it your EBITDA margin accretive? EBITDA margin, yes. It is a very profitable business, and its EBITDA margin is comparable to pretty large EBITDA margins. Okay. And thirdly, sir, what will happen to the intangible assets which will come along with this acquisition? So right now, we have acquired the shares of this company. So we have right now invested and bought the shares of the company. So the intangible value remains in that company. And then going forward, we will determine the right structure of it, and that would then determine the write off of the intangibles. But as of right now, it's a stand alone company, and the investment, it will be shown as an investment in our books. Okay. So no plans as of now to merge this enhancement into Right now as of right now, plan is to run it as an independent entity and to, you know, to grow it well. And, you know, then we will, you know, take a consideration in terms of what needs to be done. But in short term, we will run it as an independent company, and that is the current plan and thinking. Okay, sir. Thanks a lot. Thank you. The next question is a follow-up question from the line of Latika Chopra from JPMorgan. Please go ahead. Yes. Hi. Just one clarification. Mentioned that you're running at capacity utilization levels of 90% in the beginning. Are there any thoughts of any significant CapEx around the corner? Thanks. Yeah. So I'll I'll I'll take that. So, you know, as you know, we operate with a CapEx in a range of about four to 5% of our revenue. So that is going to be the kind of spend that we will have. As we speak, there are almost sort of nine plants in India, which are right now work in progress. None of these are, you know, going to be, you know, beyond this range of four to 5% of revenue that I mentioned. So all the spends that we will be doing will be within this sort of, you know, range. And, therefore, that's a continuous process of evaluation of our capacity versus, you know, our ability to service. So that process continues. But nothing's it's not going to be a significant amount of differential spend. I hope that clarifies, Ladita. Yeah. Thank you so much. Thank you. The next question is from the line of Pritesha from Investec. Please go ahead. Yeah. Hi, sir. Thanks thanks for the opportunity again. I I'll just continue where I left. Sir, my question specifically was on capital allocation. Now specifically for the enhancement transaction, if under such a 2,100 crores, 35% margins, it would essentially imply if on no growth basis, we are looking at a fifteen year payback, a rough math. So I would like to understand what are the internal numbers or how is your thought process when we go for something inorganic? Again, the question bounces back to we are a solid company brand distribution. We know the market better than probably anybody else on the street. How how does one how should one justify the multiples that we are paying over here? Apurva, you wanna take that? Or should I give a basic introduction? Hello? Hello? Sir, Pourba, your line is in talk mode. Please go ahead. Sorry. Sorry. My line was in mute. I think, you know, Ritesh, no valuation is done based on a So a payback period of fifteen year, assuming low growth would not be right assumption. Certainly, we expect Indian market to grow. We expect our business to grow, and we expect growth to accelerate. So we have a proper internal valuation methodology for evaluation of all our acquisitions. And we believe that we have done the acquisition at right valuation and having reasonable growth assumption. And besides that, you know, it it is a market leader, and it is a iconic brand, which also allows us to have number of other cost and revenue synergy. So, overall, we believe that our valuation has been reasonable. And, Bharat, if you want to add to it. Yeah. And, you know, Ritesh, I mean, we've always said even if for a moment I consider adult, think it'll probably fall somewhere between a core and a growth category. But even as I call it a core category, our objective would be to grow it at one and a half times GDP at a minimum and then add on synergies from a revenue point of view. The fact that, obviously, Araldite today, given its limited presence, does not reach, you know, two thirds of the places that Fidelight as a company does is an obvious opportunity. And like that, we also believe the brand has opportunities. So I think the best time to, again, revisit this question will be six months later when we see where we are take what we are doing with the brand. We've got our arms around it and what we're doing with it. That's that's useful. Sir, just to add, would it be possible for you to scope at what rate is the market growing at? Basically, it will help us understand Right right now, if you decide the pandemic, the market for this has been growing at between one to one and a half times GDP on a regular basis. Okay. And I would like to would probably have, like, one third market share? Probably more than that. More than that. Sure. Thank you so much for the answers. Appreciate it. Welcome. Thank you. The next question is from the line of Navi Mehta from Macquarie. Please go ahead. Navi Mehta, your line is in talk mode. Please go ahead. Hello. Hello. Sorry. Can you hear me? Hello? Yes. Can hear you. Yes. Sir, actually, on, you know, the epoxy, it is his market, which is what Arundhat is all about. I just wanted to understand, is the applicator very different from, you know, either the construction chemicals or the, you know, what we call kind of key business? See, there is a certain amount of overlap, and there is a certain amount of you know, for example, the contractor, when he does stone application, etcetera, we it's our waterproofing guys who deal with him, the construction chemicals. He is the consumer. There is a lot of wood to wood consumption, which is via the carpenter. There is a certain amount of glass and PVC, so on, which is another set of contractors. So I would say that there's a fair degree of overlap, and there are some newer customers. So but is the list is my understanding correct that large portion is nonwood in nature, current consumption, or is that understanding wrong? That would be correct. A large part of it is still in new construction. The contractor No. Nonwood. I meant I meant more nonwood for our rights. A larger part, nonwood would be greater than wood to wood. Nonwood to wood. And in that context, would it be more of a a lumber or something of that sort that we are kind of re we're kind of comparing it? All four. It is the Koti contractor. It is the mason. It is the glass fellow. It is the carpenter. It's the granite and stone stroke tile layer. So it is all of them. Apoorva, you want to add? Yeah. I think these are the major user. Also, there is a user like mechanic, auto mechanic, some some small handicraft type of industries. But what Bharat said are the major four or five end user segments. So, you know, where I was coming from is one of our strengths has been to meet these, you know we obviously have a very strong brand here. But, you know, the handicap or if I may if I'm wrong in that understanding, the handicap would be the applicator is quite different. Is that is that the hurdle that we are going to be kind of focusing on, or is that understanding the fee correct in the first place? That's not a handicap. But, yes, now that, you know, we are now approaching him with our formula of handling the applicator, but with the brand that he trusts and has used for years is makes it much, much easier. Okay, sir. Okay. And the second part, sir, is that, you know, the understanding that I had is Arundhite is, you know, operating in the, from a pricing perspective, is at the premium end, and the products are kind of focused on that segment. Would there be a thought of kind of, know, for the call in contrast has almost completely covered the market in terms of pricing, in terms of usage. Is that an opportunity that currently does exist in Adelite? That's a low hanging fruit. Is that a fair understanding or no? It's too early to say. I mean, give us a little bit of time. Let us understand the market. Let's understand how we'll play the portfolio game. But, yes, at Fidelity, we always make sure that we have a product for each kind of customers. But right now, too early to say how will the portfolio evolve. Okay. And lastly, sir, see, as you right you know, highlighted that, you know, not just, but if I'm correct, in in contrast, when you had doctor, was a manufacturing footprint that came with it. Is that a big driver over here or not really? And would you kind of look to invest in that, or how is that answer? See, it's not a big driver. We have we obviously get the know how and the technology along with it. There are current rollers. But, again, remember, we make Fevitide. We make Bluefix. So we know this technology. If we need to invest, we will invest in further manufacturing. But let's I think, again, it's a question six months down the line. Okay, sir. Okay. That's all from my side. Thank you very much, sir. Thanks, Vikram. Welcome. Thank you. Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to management for closing comments. Yes. Just on behalf of the Pedalite team, a big thank you to all of you for attending the meeting. And please stay safe. And as we approach the festive season, best wishes to you and your family. Thank you. Thank you all. Thank you. Thank you. Have a good Thank you.