Q1 20/21

Aug 7, 2020

Ladies and gentlemen, good day, and welcome to Pedialyte Industries Limited 1Q FY 'twenty one Earnings Conference Call hosted by B and K Securities India Private 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. Please note that this conference is being recorded. I now hand the conference over to Mr. Ranjit Chirumala from BNK Securities. Thank you, and over to you, sir. Thank you, Imba. Yes. Hi. Good evening. We at BNK Securities welcome all the participants who have logged into 1Q FY21 earnings call of Industries. We have with us today mister Akhurva Parekh, executive director and mister Pradeep Minnan, CFO of Prelite Industries. We thank the management of Predilite for giving us the opportunity to host this call. I would now request Mr. Atuva Parekh to take us through the company's performance during 1Q and the outlook. Post which, the floor would be open for Q and A. Over to you, sir. Thank you. Yeah. Thanks, Ranjit. This is Pradeep Panin here. I will give the opening statement, and then we will take questions. So good evening, everybody. I'll begin with a summary of the financial performance for the quarter ended thirtieth June twenty for the stand alone business. This quarter's performance was significantly impacted by the lockdowns as a result of the pandemic. While April sales was completely impacted, we saw a partial recovery in May and a significant recovery in June. The recovery has continued in July. Profitability of the business was helped by softer input costs as well as stringent cost control measures undertaken across the organization. While near term demand appears uncertain as a result of the continuing pandemic and the resultant restrictions across several parts of the country, we remain focused on restoring volumes and ensuring profitable growth. From a geographical perspective, the metros have been the most impacted. The Western and Northern regions have been more impacted than the South and the East. Consumer and bazaar businesses have seen a swifter demand recovery, especially in rural areas and semi urban towns. We are seeing a strong recovery in construction chemicals and DIY products. Business to business segment is seeing a slower recovery. As a result of periodic restrictions, our plants are operating at a capacity utilization of 75 to 80, and operating efficiencies of our warehouses have been impacted on and off during the quarter. Most of the employees are working from home, and necessary office connectivity is in place. Versus June, July had stronger sales performance largely driven by consumer and BAZA segment. Our retail construction chemicals and emerging India, emerging India is covering our rural and small town business, have returned to double digit growth over the last two months. Our b to b business in construction chemicals continues to be impacted negatively due to the ailing real estate sector. Net sales at rupees 768 crores declined at 57% over the same quarter last year with underlying sales volume and mix decline of 58.3%. This was also driven by a 58.6% decline in sales volume and mix of consumer bazaar and 53.7 decline in sales volume and mix of business to business. Material cost as a percentage to net sales is lower by 297 bps over the same quarter last year. However, it is higher than 100 and it's higher by 134 bps versus previous quarter. Current spot price of our major raw material, vinyl acetate monomer, is around $6.50 to $700 on account of low demand and stressed market conditions. We do not believe prices at these levels are sustainable in a post pandemic environment. The consumption cost for q one twenty one is around $825 as compared to q one consumption cost q q one twenty consumption cost of dollar $9.65. Benefits in the input cost as compared to the prior quarter is neutralized by adverse currency movement and change in product mix. During June, the performance in terms of profitability as well as absolute EBITDA has been at levels of prior year. We have taken adequate measures to keep costs under control. EBITDA before nonoperating income stood at 97 crores for the quarter and declined by 77% over the same quarter last year. Profit before tax at 78 crores declined by 82% over the same quarter last year. PAT at rupees 58 crores declined by 80% over the same quarter last year. In terms of consolidated performance, net sales at 873 crores declined by 56% over the same quarter last year. EBITDA before nonoperating income stood at rupees 67 crore, a decline of 85% over the same quarter last year. Profit before tax declined by 92.7. Moving on to our domestic subsidiaries performance. Performance of subsidiaries were heavily impacted on account of nationwide lockdown in most parts of the quarter due to COVID nineteen. During the lockdown, the focus of the subsidiaries were towards collections and improvement in working capital. Moving on to international subsidiaries performance. While performance of our international subsidiaries have been impacted due to the pandemic more so in the Sark region than the rest of the world, we have seen a recovery in June and July. We focus on DNA markets, as you know, and our global business is split into three main area, Asia, Africa and Middle East, and Americas. As such, we have commenced our reporting into these three broad groups from the current quarter. To sum up, we believe that normalcy will return to our business when cons consumer confidence is back, and that is linked to the pandemic coming under control. And two, the consumer has money in his pocket to spend. So far, we have seen the markets recover faster than we expected, especially in the regions where lockdowns are eased. As such, when the pandemic subsides, we could return to normalcy quite quickly. Pedalite is driving a big initiative to educate the contractors on basics of hygiene and related workplace and personal safety practices. Then the contractor is able to convince the consumer that it is safe to allow him into the house. There are online certification modules and also videos that are being circulated for this purpose. We believe that our strong brands, extensive distribution network, robust balance sheet, and connect with consumers and end users will help us in restoring volumes and ensuring profitable growth. However, going forward, we would like to remain cautiously optimistic primarily on account of external constraints such as probable lockdown extension, uncertainty about consumer confidence, getting back to normal spending level, and availability of higher consumer disposable income. We expect commodity prices to remain soft and the full benefit of the downward movement in prices to impact largely in the second half of the year after considering the inventory impact. Extend of adjustment to price or scheme discounts will be determined by the premium to be maintained versus competition. Our cost management actions have been effective, and this can be seen by the reduction in discrete discretionary costs affected during the quarter. We will remain watchful over our discretionary spend in order to ensure profitable growth. That concludes our opening statement, and we can now open the line for questions. Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Anyone who has a question may press star and 1. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Tushar Sanjrani from Edelweiss. Please go ahead. Yes. Hi. This is Abhish here. Thanks for the opportunity. My first question is you have given for May and June how many shops are open. Does it also correlate with the business? So was the business in May broadly 50% of May last year, and June was 80% of June last year? Is it correct to understand all that? So, Abhish, you know, we have given you a obviously, the quarter broad market conditions in terms of outlets opening and and so on so forth. We have not really given a month by month progression of, you know, sales. Suffice to say, as I said, that it has been a a positive momentum from a situation where April was near zero to, you know, a part recovery in May and to a much more significant recovery in June, and we have seen that recovery momentum continue into July. So I think that's the broad sort of sense that we can give you. But July, has it further accelerated? Because now most Yes. It has further July has accelerated. July has accelerated. And as as as I as I mentioned in my opening statement, we are seeing, you know, on two fronts. One, the as the lockdown eases, we are seeing the return to growth faster than at least we had anticipated. The second element is our emerging India business, which is covering rural and small town, that is recovering very fast. And in fact, growing, as I said, double digit over the last two months. And similarly, an important portfolio, which is our retail construction chemicals, is also growing double digits. So there are, you know, several pockets where growth has returned, and the momentum is continuing into July. July has been a better month than June. You said you invested in the ecommerce furniture companies and the home decor ecommerce companies. So, obviously, now corona has changed things significantly, maybe a bit more adverse on the adverse side. So what is the learning, and what will be the thought process on further investments in these companies or into similar new opportunities? Is is is there something a change in terms of thought process because of the COVID? So I I would say I'll I'll give you a a sort of a broad picture, and I'm sure Apurva will have a point you know, something to add here. So I I see, in our view, the the you know, it's, you know, three months or six months, etcetera, may or may not be a right time frame to really take a call in terms of strategy. The the reason why we were investing in some of these companies is it is a fact that we want to be in the in the right place as a pioneer, as a company where we have really, you know, built some of the categories and the changes happening in that those categories and the ways of doing business. We want to be in in the know of things and be away be clear on the development in the marketplace. And, therefore, any such development which happens, we want to be sure that, you know, we are really up to speed and we are able to respond accordingly. The fact that a particular quarter or something has happened, you know, may not necessarily change gain the our point of view. As I said, as a responsible corporate, we'll be, of course, very cautious, and we'll be very measured in the kind of investments that we'll make. But our overall long term strategy remains unchanged, and the rationale for in these companies, I I'm not undergoing any drastic change. Apulo, you want to add on? No. I think just as you said, you know, our our rationale of investment in these companies was to, you know, get a a close look at these emerging companies in our our space as well as to collaborate with them for mutual benefit. So, you know, we we are working with them in this direction. We are also seeing closely that what is the impact of COVID on these kind of companies. And, you know, once we have a better sense of it, then we can decide about future investments. Right. My next question is we are seeing a stronger recovery in construction, chemical, and DIY. So what is the reason for that? And paint companies are also getting aggressive here in DIY also. So is that a cause for concern? Yeah. So so, obviously, you know, I think we have said that the construction chemicals, you know, there is a season here. We are in the in the some of the regions, there is pre monsoon. Some region, monsoon was completely set in. So there is a pent up demand also coming through in this space. From a from a broader perspective, it is a fact that the the the entire construction chemicals and waterproofing area, the kind of size of our market is significantly less compared to more mature markets. So the market is also growing, and, you know, there are players who are there in that, you know, in that space. We believe it'll be good for the market itself. You know, the market itself grows. You know, competition is helpful in such scenario to build usage and consumption. So that's the way we look at it. As I said, we are seeing strong demand, particularly, as I said, in the rural, semi urban areas. And we are also seeing wherever the lockdown ends, even in the metros, we are seeing demand returning quite sharply. So at this point of time, we don't see a concern from that perspective, from a particularly competitive or any other perspective. Apurva, you wanna add something here? No. I think you also asked about DIY. You know, DIY products, you know, fairly, you know, fairly good portfolio, you know, strong brands. We have been in market for a very long time. And, you know, on and off, there have been various companies which which compete with us in this segment. We we have not seen or noticed any significant change in competition dynamics. So to follow-up here, do you need to do address all the gaps, sir? Because the paint companies have come up come up with, for example, spray for the tiling and anti rust. All these are DIY. So I wanted to understand if you already have this. No. We don't have a spray paint, you know. If you are asking, do we have a spray paint in our portfolio? We don't have a spray paint in our portfolio. See, DIY when we say DIY is not tiling. The spray for tiling and anti anti rust. Not exactly paint, I think. Yeah. But these are different types of product. You know, the DIY is a very broad category of DIY. We are focused on DIY adhesives and sealants. You know, products like FavicWick, M Seal, SteelGrip, and products of that nature. So the products that you just referred are different than what what we have for different products for different applications. And the waterproofing, just one and this is my last question. Just one follow-up. So in adhesives, for example, I don't think there is any credible India competitor to you. But in waterproofing, you have got all these paint companies which are much more aggressive. So in your waterproofing, would you need to be much more agile, much more aggressive than a let's say because the competitive profile is very different? Yeah. Abhish, just to answer and then, Pradeep, you can add is, because, see, generally, for in in any segments, we need to be agile, and we need to be watchful of any competition. You know? I I would not say that we we we should not be that in adhesive or some other segment. Being agile and watchful is very, very important. Within construction chemical, as you well know, construction chemical is a very broad category with a large number of different end user. There is a certain consumption by painters, but there is a lot of consumption which is by masons or, you know, construction contractors or waterproofing contractors, large contractors. So there is there is a you know, there are very different type of end user, and there is a very wide portfolio of construction chemical product. So products which are used by painters, yes, paint companies have certain advantage. And, also, what paint company has done is try to convert some of their traditional products like primer or top coat into waterproof products in a way upgrading their own products. So clearly, you know, they they are trying to educate their painters to use more value added product, and they have a significant strength amongst the painter. But this is, again, a very large market, as I said, with very large number of end user, very different end user. Small part of that is occupied by painters. But we targeting the painters? Me? Are you targeting the painters? And is it a small portion? You said it's a small portion of target Abhish, I think we can separate the construction overall strategy. Otherwise, our quarter recall will just go in that. But, yes, we have a range of products for painters as well. And, you know, maybe we can, you know, cover separately this about how we are approaching the segment. Sure. Sure, sir. That's all from me. Thanks a lot. Thank you. Thank you. Our next question is from the line of Kur Pandya from ISA Prudential Life Insurance. Please go ahead. Thank you. General, my question is on the consumer bazaar. Sorry to interrupt. We are not able to hear you very clearly, sir. If you're on a hands free, please switch it to handset. Hello? Sorry. So my question is on the consumer and bazaar segments. If you can dissect the growth within consumer and bazaar, same adhesive and sealant and construction chemical as you show in the pie chart, how the recovery has been in these two subsegments and the current trend among these two, then it would be helpful. Yeah. So, you know, the I think we covered broadly these points in the opening segment. See, I what we are calling out is as far as the quarter is concerned, we know that there is an impact, right, across all categories and across all regions. What we are talking about is how is June and July been in terms of a recovery. And there, we are clearly calling out to you two aspects. One, the fact that our emerging India business, which is our rural and small town business, that has returned to double digit growth. Now that is across a number of segments, which includes adhesives and because that is more driven by region and and and, you know, you know, size of the the smaller markets. They are covering or straggling across number of, you know, product segments. And there, the growth has returned across all of these elements, you know, whether it's this is or whether it is construction chemicals and so on and so forth. The point we are seeing is the overall performance of the business. If you look at it, the one to call out and where you're seeing strong demand and, you know, growth, That's why we called out called out DIY and retail construction chemicals. All of our, you know, categories have, you know, you know, improved month on month, and and that's the kind of message that you want to give as well as June and July. July has been, you know, better much better than June. And June, as you as we've already called out, has been, you know, significantly better than May. Yeah. So that's the kind of detail. And as far as the individual subsegments within consumer and bother is concerned, that's not something we really talk about in a quarterly conversation because it it just creates confusion. So then quarter on quarter, you'll, you know, you'll have all these huge variations that will happen in a in a in a market like this. It won't help you in getting a trend or a proper analysis. Okay. Just one follow-up on this. So what would the size of this emerging index as a segment or cutout? How large it would be as of now for us? Yeah. See, last year, on a full year basis, broadly 30% of our business was, you know, emerging India in the consumer and Baja segment. This year, of course, given that it has performed better than the other parts of the business, it it its share would have gone up. But they on a sort of longer term trend basis, it's about 30%. Okay. Understood. And just last question from my side. So the basic point I I was trying I mean, I just wanted to understand is that apart from construction chemicals, one of the large cash cow for us is the adhesive dominated by a very cold brand. So how that has performed? Because if I am not wrong, even before COVID, because of the real estate led challenges, the growth was not as as high as some other segments. So what is the situation there? I just wanted to understand that. Yeah. So, even as far as additive is concerned, the similar story of whatever we called out in our opening statement is is valid in terms of, you know, recovery between April, May, June, July, there is absolutely no doubt, you know, in terms of the fact that when you have, you know, requirement of, you know, furniture making, let's say, inside the house, there will be certain hesitations of the consumer to bring the contractor in or to bring labor into the house. And therefore, that is the action that we are driving there. There is a it will it will not be or it is it is recovering slower than the construction chemicals, which has already moved into a double digit category. However, the challenge there is how do we, a, educate the contractors to, you know, follow hygiene and workplace safety measures. And then we are also, in a way, linked with the consumer confidence around the pandemic. Right? So that's the other element which we have to have in our mind. So which is why that recovery will not be at the same pace as the construction difficulties, sir. Apu, you wanna add something here? No. No. I think your reply was proper. Yeah. Nothing to add. Okay. Okay. Thanks a lot. Thanks a lot, and all the best. Thank you. Our next question is from the line of Prashant Kuti from Sundaram Mutual Fund. Please go ahead. Yeah. Hi. Thank you for the opportunity, sir. Just one question from my end. In terms of you said that July has also seen a bit of recovery. How much of it would be pipeline filling if you could probably highlight over here? Because, like you said, we only started up only around May or May. So how much of it would be actual regular growth which is happening? And, also, if you could just tell us what would be the share of, let's say, a rural or, let's say, a tier two, tier three town versus, let's say, metros and tier one for us. The second part of the question, I didn't understand because I thought I just answered the rural part just because the share that part if you if you just go Oh, okay. I'm sorry. Okay. Okay. So your question is in No. I was understanding in terms of, let's say, how much of it probably has been filling as far as the the the primary part of the business is concerned around June and July because I believe there would have been some pent up demand. So and and how much of it, let's say, is pent up demand or regular demand for that matter? And that that that's what I was basically trying to understand. Sure. Sure. See, I think, obviously, it's it's a difficult, you know you know, sort of question to really answer, you know, explicitly in terms of, you know, whether it's pent up or not. Because, you know, you can always never get a clear answer till you see a trend for a longer period. And we've seen just, you know, June and July, two months to really have a point of view. Having said that, it's just two, three points I wanna make on this. One is wherever the pandemic has wherever the pandemic has, you know, sort of retreated, the recovery has been quick. So that is the one sort of, you know, reassurance for us as a business. The second is that from a stock in the market or what we you know, we don't we don't have, you know, large pipeline of stocks in the market. Our stock levels in the market, you know, between the distributor and the dealer, We sell into the distributor, and the distributor then sells to the dealer. The overall pipeline of stocks are also very, very limited. So it's not like, you know, we are having any sort of stock, you know, movements between of the system. Pre conduct yeah. Pre pandemic and now. In fact, our levels of stocks in the market would be at the same level pre COVID or maybe even less. So that is the second point of reassurance. The third is, really, I agree with you that, you know, unless we see August and September, maybe another two months of, you know, you know, performance of these various markets, you can never arrive at a complete conclusion whether, you know, is this pent up demand or return. But, certainly, you know, when you're seeing multiple markets, the same thing happening, that does give us some confidence. Okay. And I'm sorry. I just missed out. You said the what will be the share of, let's say, tier two, tier three, tier four maybe rural versus, let's say, tier one metros? Yeah. So our we call it the rural and small town India, which is obviously the tier two towns. These these ones are approximately 30% of our business. Okay. And you're saying this is growing at double digits? Yes. Okay. Okay. Second question is is on the on on the gross margin profile. I believe this quarter, if you look at the sequential decline while the ramp continues to be benign for us. So sequential decline, is it anything to do with the fact that the scale of operations was lower or maybe and anything anything anything to do with that as to why the gross margin came off on a sequential level? And at a more sustainable level, what should one assume the gross margins to be? Yeah. So really speaking, there are two or three points here on sequential gross margin. One is that we did say that there is a trending down of, you know, spot prices in the in the in the commodity prices, but those have not yet reflected in our p and l because, you know, it's purely because of inventory, the raw material and finished goods. This is one point. Second is even where we have seen in the case of VAM, a drop in dollar price of around $20, that has more than compensated by the impact of the rupee devaluation which happened between q four and q one. You know, the it's more a timing thing. You know, you should look at the spot prices of rupee dollar just now, but the time when we've done the deal and the foreign exchange contracts, there is a there is a devaluation which has hit the, you know, the p and l. And therefore, our cost in some of the materials including VAM in q one is higher than q two in terms of rupee in rupee terms. This is the second point. The third point is that we did have in q four certain one off sort of credits coming more from our annual discount that we get for our sourcing from vendors, and that has come into q four days, which obviously doesn't repeat in q one. So depending on the volume, that's how you get credits. So Okay. That is not a more volume oriented, actually. Volume oriented. Yeah. So now what we'll have to see is the level at which we are seeing q one margins. You know, these are obviously the margins that we see, you know, We we don't give really a guidance at this stage. It's difficult to guide in this kind of a market. The point we wanted to say earlier also in in the opening is the even if the, you know, the dollar prices fall or even the rupee impacted prices of our raw materials drop, we we really can't say the in terms of EBITDA margins, how this will finally translate our gross margins. It it will exactly translate because we will need to also drive volume. You know, we need to have a sustainable volume growth as well. So what part of the drop in material costs we'll have we will pass on in terms of price reduction, in terms of discounts and schemes, etcetera, and what kind of premium we need to maintain versus competition. All of these factors are a bit, you know, obviously difficult to gauge. Suffice to say that we are expecting raw material prices to be soft in the second half of the year. But what part will pass on? What part will get retained, etcetera, is difficult to sort of envisage at this point. And your mix correct just just correct me if I'm wrong over here. But mix, and I'm talking about, let's say, the the likes of DIYs and the and the likes of construction chemicals would be higher margin as compared to, let's say, the likes of Adhesives. So isn't the mix favorable? Just just just correct me if I'm wrong over here. No. It will be very, very miniscule. The most you know, the impact will be very miniscule in this. I mean, there are the all of the various categories are all operating at, you know, mostly quite substantial margins. Okay. Decent level of margins. Yes. Sure. Sure. Thank you. Thank you so much, and all the very best. Thank you. Thank you. Our next question is from the line of Avi Mehta from IIFL. Please go ahead. Hi, Apoorva and Pradeep. I just wanted to understand consumer trends witnessed in the post COVID world, especially in terms of the willingness to allow applicators into homes and, you know, how do basics versus premium products, how are they behaving? If you could share that. Yeah. So I think the first part I'll take, and I'll request Apoorva to cover the second. So as we said, you know, the consumer behavior, there is no doubt that there is, as you said, two parts to this. There is a, really, there is a part around the pandemic and the consumer confidence, right, to allow, you know, labor inside the house. That is no doubt about it. And therefore, our job as a company is to make sure that we connect. And during this entire period, you know, we have really invested a lot on our, you know, digital connect with our with our through our sales teams, with our end users to make sure that, you know, we even do, you know, outlet visits remotely. You know, that is the kind of connect now we have with with with our end users. And therefore, what we have been trying to do during this period is to educate our contractors, educate the the various end user connects that we have on hygiene and, you know, certification. So some the certification is such that that gives a confidence to the consumer that the person follows all the right methodologies and can then be allowed in inside the house for the work. We are seeing success. I mean, the way I would say is that very difficult to say, you know, whether there is what part is success and what is not. But the fact that we're getting growth back in June and July gives us some confidence that this this is indeed working. And our connect with our markets and our end users is is really working, and therefore, we are seeing improvement in confidence from the consumer in allowing people insight. But, of course, the complete confidence will only be back when the pandemic is under control, and that, you know, is your guess is as good as mine. Second part, sir, if someone Sorry. On this side, I'm just to kind of clarify. You are saying that there's an increased confidence in allowing can applications back into homes for new applications. Is that what you are seeing? That's what I want to kind of just. Yeah. So when when you say new applicators, I didn't I didn't get that point. As in was the you said towards the start of the call, you said part of it may be pent up in the I mean, I was not very clear on that part. Was this that, you know, the person was also just wanted to get his job done and, you know, you kind of paid it, or was it more that, you know, you're seeing that people are actually willing to now explore and, you know, get these reconstruction activities back online? You know? That's Yeah. So so look. You see, we are seeing construction activities more, as you said, in the in the rural, small town. Those areas we are seeing, you know, the new construction pieces also, you know, progressing. Less in the metros, to be to be frank, but the jobs to be done wherever they are to be done, you know, in some cases, it could be urgent repair or something which gets a priority. But we are seeing that as the pandemic reside, those jobs are also coming. But, obviously, the bigger share of jobs are coming in the small town and the rural space, less in the large metro towns where there is a pandemic. Perfect. And the base course is premium? Yeah. Apoor, you wanna just take it? So so I'll just also add to the first part. Still, it is, you know, very early days. So, you know, it is very difficult to get any clear sense of what consumer behavior is and how will it be going forward. But from early signs of what we see that the areas which were less impacted by pandemic, the areas which had shorter period of lockdown seem to be appearing faster. So, essentially, as period of time passes, you know, we we will see, you know, that, you know, the consumer behavior may again start returning towards normal. But today, it is, you know, We have to see how thing evolves. You know, we are or as we all are right in middle of the situation. But many parts of India, the way they have recovered, you know, it it is it's a good sign. But but, clearly, we have to be, you know, cautiously optimistic and watch how it evolves. Base versus premium also first of all, our entire portfolio is of good premium sort of products. Some of our premium products are meant to get work done faster, so people clearly prefer them just to get the done work work done faster even before COVID. So I cannot say that we have seen some noticeable change which we can attribute to this. There could be some change happening. But, however, again, it's it's very, very early. You know, we barely ever had two months of, you know, sort of sale recovery going on. So as months pass, we will see. Okay. And just to follow-up, you know, the increasing emerging India sales, does that in any way imply either a lower gross margin because of mix or that doesn't have any impact? No. No. No. It it that doesn't that that doesn't imply that at all. Our portfolio is more or less similar. And, you know, when we say emerging India, it covers all the small town and the rural area. So there is a fairly vast population there. And there is there is no there is all our lead branch sell there, and there is no significant change which will impact the the gross margin. Okay. And lastly, have this you know, from the commentary that you have given, it seems that obviously waterproofing recovery has been, you know, ahead of our estimates. Is the impact that you are seeing or, you know, this, you know, a version of consumers to allow applicators more in the adhesive side? Is that a thing that we take into? We we should not read so much into such a short trend. As we all know, you know, even one quarter is a short period. You know, some of these comments are based on only June and July. And out of that, also in some product, it could be seasonality. In some product, there could be a greater pent up demand. So, you know, I would really not like to, you know, guess or comment on it. I think we need to let the time pass. You know? Only thing as as Pradeep covered is that, you know, the recovery phase has been good in June and July in many, many parts of India. So, essentially but we would not like to read too much into it. We would like to let another few months go to see to get a better trend of what is happening. Okay. Perfect. I'll come back in the queue. You very much. Thank you. Our next question is from the line of Anand Shah from Axis Capital. Please go ahead. Yes. Hi. Thanks for the opportunity. Just one thing, can you comment on the domestic subsidiary, Mina and Kasipino, how they are progressing? They had a much tougher Q1. So you seeing any recovery there? Yeah. So you're absolutely right. I think even before the pandemic, Nina and CP, both of them have got a, you know, a exposure to the real estate sector. And in the case of CP, it is there is a connect with the with the auto sector. And therefore, both of these sectors have been under pressure. We are obviously seeing challenges there. Again, very difficult, you know, the real estate to predict how this is going to emerge. So I think we'll to just wait and watch. Right now, we are trying to make sure that we get the basics right. We get the, you know, the business, do the fundamentals right, make sure that we have the people on board because, you know, the kind of work we do, including waterproofing, these are relatively specialized kind of work. So we also wanna make sure that we have some some of those, you know, people and labor available. So when the demand recovers, we are in a position to respond to the requirements. But given the, you know, the nature of that subsidiary and the nature of exposure, it could it will be a longer sort of recovery path is what we see. Again, very difficult to predict exact timelines. Okay. And we also saw a substantial erosion in profitability there. So any any any steps there you are taking there to contain losses or, you know, improve profitability there a bit because it is going to be a sort of a slow buildup in terms of revenues. Yeah. So I think, you know, all these subsidiaries, the same approach that we've taken with light of the group, all discretionary costs under close scrutiny. At the same time, we are trying to balance between, you know, you know, taking structural actions because the danger of doing that is when the recovery comes, then we will not have the, you know, the right resources to respond. So we are just waiting and seeing at least a couple of months to see where things are going to return quicker. But all fundamental things like, you know, you know, discretionary cost cuts and, you know, tightening of bills, all of those are being done in the subsidies. Okay. Okay. And just on international as well, I mean, how things are progressing there? I mean, they they literally perform better than both domestic and the subsidiaries. So I'm assuming because the COVID set in different parts of the whole different time. So are there so is is that now for on full part to recovery? Would it now be that your pipeline will growing at least in some parts? Yeah. In fact, there are two parts to this. One is the pandemic had a bigger impact in the SARC region than the rest of the geographies, Yeah. And even there, we have seen, you know, recovery in June and July. Overall, we've seen growth in June, and we're seeing that coming back, you know, that similar trend in July as well. We are seeing the companies in in our international business, you know, in quite, you know, kind in of a situation where I think the the story from the past, even last year, if you recollect, it was a double digit growth and significant improvement profitability performance. So we are seeing that trajectory continuing at this point of time. Yeah. Okay. That is great to hear. And then lastly, on maintenance on this other expenses, can you just highlight as to what would be the kind of advertising cut you would have taken in this quarter on YOI terms? I, you know, overall I'll just give you an overall picture. And Sure. See, you've seen that in terms of our overall, you know, reduction in overall sales, we've taken a cut in around you know, our overall drop in revenue has been in the region of about 56 odd percent. And we we have tried to make sure that barring the cost, like staff cost, etcetera, which obviously cannot respond in a similar manner, and there are there'll always be some certain costs, like, you know, admin expenses, etcetera, which cannot respond. All other costs, we have, you know, made cuts in largely in proportion with the same. Okay. And but, you know, I mean, now as your revenue progresses, you're calling out that June and July are looking much better relatively in terms of recovery and all. I mean, you won't see a proportionate increase in the other expenses as well. Right? I mean, you will start investing back. Yes. Yes. Yeah. Absolutely. Okay. And any any part of these expenses would be, a structural savings? I'm I'm assuming, you know, you would have actually the cost cut push. So at least some some part would, you know, sort of come down. Quite difficult. You know, most of these are, you know, things like travel, etcetera. You know? I mean, if if, you know, people are not traveling, and therefore, there is a reduction. Now once, you know, travel restrictions ease Yeah. You know, we will you know, there will be travel back. So that will be the similar level as pre COVID or not, you know, with all the various digital, you know, actions we have taken or actions we have taken in terms of more digital connect. Difficult to fathom at this point of time, but, you know, a large part of it are are you know, may not be fully sustainable, but some parts could stick. Very difficult to predict the proportion. Oh, and just last thing, I mean, this June, you called out the 80% outlets are now open. I mean, this this would be across your channels. Right? Because you have a very, very, very kind of discussed channel, I mean, different channels and all. And so this would now be back toward 90 odd in July or so? Yeah. Yeah. 90 plus. 90 plus. Okay. Thanks. Thanks a lot. Thank you. Thank you. Ladies and gentlemen, we would like to request you to please limit your questions to two per participants. Time permitting, you may come back in the queue for a follow-up question. Our next question is from the line of Adnan Mitra from Credit Suisse. Please go ahead. Yeah. Hi, Pohan, Sandeep. My first question was on the woodworking adhesives. So any sense of how much does this commercial real estate construction, you know, use woodworking adhesives in terms of, let's say, retail shops, offices? Because that is one segment where we could see continued impact even for the next few quarters. Is it a very small part of, in your sense, food working adhesive demand, and any sense on what's happening there? See, it's I don't have a exact figure, you know, because never before we had to track it that way and the channel being common, it's very difficult to segregate. But I would not think it is a very large part because if you see the amount of consumption across various different end users, I don't believe commercial real estate by itself would be a very large consumer. Okay. Understood. And my second question was on the July recovery. So I'm looking some industries, we've seen the second round of lockdown having a negative effect in on the momentum that was building up. So have you not seen any impact of that, or is it that there are other cities that are recovering, which are kind of making up? And any sense on how the second round of lockdowns have played out for demand? Yeah. So no. You're right. I mean, it's it's a very difficult situation to predict. You know, for example, we were seeing a a stronger recovery in the South. You know, some part of it has, you know, re you know, sort of gone back in July because of the fact that, you know, we've had multiple lockdowns in some of the key locations in the South as an example. So we are seeing the pluses and minuses. Overall, we are seeing, you know, things moving forward. So which is why we've called that out in our opening statement. And and just one follow-up on this. In terms of the restocking question somebody had asked, I I think definitely today, as you said, stocks are not above pre COVID levels. But versus where they were in early June, I'm assuming things would have recovered. So any sense of how much could be the restocking in the month of June and July? Is it something which is very large, which could have upped the number, or you feel reasonably comfortable that the trends are more or less in line with optics in the market? No. No. They are you know, we we don't have any significant stock. I mean, over even during this period, we have not had significant stocks increase in the market. So there is no such see, I would the way we work is the the the process is that the it's it's a replenishment process to the distributor. So there is a certain cover, and based on that, that cover, we replenish. So it's not like a push system. And therefore, the secondary sales is what sort of drives the movement in stocks at the distributor end. Okay. Thanks so much, and all the best. Thank you. Thank you. Thank you. Our next question is from the line of Jaykumar Doshi from Kotak Institutional Equity. Please go ahead. Yeah. Hi. Thanks for the opportunity. My first question is, you know, during this COVID period, have you sort of you know, is there any changes in the way your sales engages with the distribution? And the question comes from the perspective that, you know, employee cost as a percentage of revenues is almost twice what it is for paying companies, and that is partly because of the breadth of the portfolio and the verticalized sales structure you have for different verticals. So do you think that post COVID, you would probably have you relooked at your sales organization structure, and do you think there are more efficient ways of engaging with dealers and the entire channel with a much leaner organization? See, I'll give you a sort of initial response and the request. I've provided shipping on this one. See, you know, I think the percentages can be misleading because, obviously, in a quarter like this, when the numbers are the revenue itself is low. And Sorry. I don't I generally referring to not not specific to the quarter, but overall, your so FY '20, your, I think, employee cost as a percentage of sales was about 11 and a half percent for India business, and which is usually about 6% for paying companies. So this is more that has COVID changed the way you engage with or will it change the way you engage with your network and dealer. Yeah. So I think the first point here is that, obviously, the way we we have you know, we're just comparing it to paint companies which have a particular model. So we have got an aggregation of businesses here, and our model, you know, including, you know, the the fact that we have to focus on multiple products and a fairly complicated portfolio does add to the overall, you know, requirement of a structure. Having said that, during COVID, obviously, we have had to connect with our distributors, with our, you know, end users in a in a form of digital format. And, obviously, there are some lessons and learnings coming out of that. At this stage, again, it's very early for us to say, you know, does this is this a sustainable way of operating? Does it change the model we are operating? I think too early days to really give a response. But, obviously, like we said before, we are looking carefully at all of our costs and including our organization structure costs. And, you know, if we find that there are opportunities for optimization, we will certainly take those actions. But they're they're not really the priority at this moment. Our focus is to get the growth back on track, make sure all our fundamentals, which is, you know, getting the volume growth back, you know, make sure costs are under control, and also respond to the new environment. You have three sort of focus areas that we are looking at. Apur, I wanna check check-in on this. Yeah. No. I think just a little bit I will add. You know, I think, Jay, clearly, we are, you know, changing the ways in which we work using digital and other technology to engage with with both channel and end user. So, you know, that is happening. And in future, it it could result into some evolution of the structure. But as Pradeep said, this is not the priority right now. The current priority is to, you know, be ready to service the market as the normalcy returns. So we are not doing anything which is immediate, but, certainly, we are, you know, making our working far more efficient by, you know, by using the technologies which are available. And, you know, pandemic has, you know, has, you know, sort of forced us and many other companies to start using more and more technology in terms of how we work with end user influencers and the teams. That's helpful. And second question is, you know, you have a very strong sort of capabilities on waterproofing in VNAN percept in terms of services capability. Is there a opportunity for you to use those capabilities or expertise to sort of strengthen the retail side of the services business also in waterproofing, particularly because we are seeing, you know, quite a lot of weakness in the, you know, in the in the line percept overall from, you know, demand perspective. So do you think there is you know, you can use that expertise to strengthen your doctor's fixed services? You know, when we call up customer service care, you know, we are attended by a third party contractors, waterproofing expert. Do you think there is room for, you know, Mina Percept experts to participate in or So currently Jay, no. I understood your question. Currently, our focus on Mina and Percept is on the large construction. Now we believe there is a very significant opportunity in terms of, you know, large construction, specialized high technology, waterproofing related work. And, you know, Neenah occupies a very unique position in that market being the largest and the strongest. And hence, you know, yeah, you know, it is gonna focus on that market segment. As far as the retail, you know, the service oriented oriented construction work, that's a very, very different market. And here, you know, we work very closely with waterproofing applicator, and, you know, we can recommend applicators to people. But it is a very localized work. And as of right now, we believe it is best served by the local waterproofing applicators, and we work very closely with them. So but currently, there are no plans for Nina to enter that segment. You know, it is gonna service the opportunity which it has. Right. And the final one, a very quick one. Actually, Brent price is a dollar $6.50 per ton is probably the lowest, at least in dollar terms, that you may have seen in the past five, seven years. So are you considering some opportunistic buying or sort of stocking up of inventory, raw material inventory in this scenario? Yeah. So I think on this one, you know, what we normally do is that, you know, ultimately, it is, you know, the the the requirements, you know, driven by the business and the need for a particular level of stock. As I said, the inventories, the buying timing, etcetera, will be determined by the demand from the market and our current raw materials inventories finished goods inventory stocks. And therefore, you know, that is the way we look at it rather than, you know, buying without a requirement. So we will buy when there is a requirement and, you know, accordingly consume rather than we can always, of course, contract for a future date. Those are the things that we will do. You know? Thank you so much, and all the best for the coming quarter. Thank you. Our next question is from the line of Chirag Shah from CLSA. Please go ahead. Yeah. Hi. Hi, Apoorva and Pradeep. Thanks for taking my question. My question is a bit long term on the long term strategy. First, on our manufacturing and supply chain capability, correct me if I'm wrong, but we currently have about 23 manufacturing plants, and we are in the process of setting 12 more plants by 02/2022, if if that number is right. What are the long term efficiency gains that we are looking at in terms of logistics cost and supply chain efficiencies? And what is the overall CapEx that we have for the next three years? Yeah. So, you know, in terms of supply chain, I think, as you rightly mentioned, we continue to invest behind our supply chain to make sure that, you know, obviously, we meet the the demand requirements in the market. In terms of the efficiencies that are, you know, coming through from the supply chain, it's a consistent process. It's a consistent, you know, improvement process that we follow. We have, you know, across the various supply chain factories, we have got a number of parameters to evaluate performance in terms of cost, in terms of dashboards. And that process, that continuous continuous improvement has been happening over the years, and it'll continue. It's very difficult to put a number as to, you know, how much will that, you know, give us benefits in terms of, you know, cost. So we're not really able to give a particular number at this point of time. In terms of CapEx, CapEx, you you would notice from our historical trend. Typically, we in a normal year, we would spend between four to 5% of our revenue, and that's the kind of CapEx that we have spent. In a year like this, it could be difficult to put a percentage because we may need to spend for the future, you know, for example, in terms of power plants or in terms of any other category that we are investing, even though, you know, we are also investing we have JVs which are underway where we will need to invest, you know, where the JVs are signed up and we see potential into the next financial year. So we would spend the CapEx based on those requirements. But, typically, long term, we end up spending about four to 5% of our revenue as CapEx. Sure. But just to be clear on on that part, 12 plants on 23 plants, I'm I'm assuming that I I you know, it's not a proportionate addition, but it's a fairly large addition to the capacity. Are we looking at also more in sourcing going forward? See, the each of these plot the you know, as we are, you know, expanding and getting to, like, just in categories, you would have seen the number of, you know, joint ventures we have got into the last one year. We have we need to operationalize those entities. We need to invest and get those new categories underway. So there there are, you know, plans and there are, you know, investments that we need to make. These need not be large spends. You know, each of these plans may not be large spends, but these are spends which are for a particular category or subcategory, which at this stage could be relatively smaller in terms of demand, but these will in in turn, you know, pick up, expand as time goes. So don't read too much into the number of plans, you know, whatever we have communicated earlier. It is more the CapEx spend in a long term basis. These are the kind of numbers that you should look at from a planning or from a sort of a trend. Sure. And the second question is on the number of SKUs that we have. We have 500 plus SKUs right now. And just connecting that to the earlier question also in terms of saving more efficiencies in terms of servicing the market and employee cost. Are we looking at I mean, this is a good opportunity to rationalize some of the SKUs. Are we looking at SKU rationalization and bringing in more efficiencies on that? Yeah. So, you know, this is a continuous process. You know, you're you're right that when you have a long tail which doesn't give enough revenue, then that can lead to inefficiency. So this is a continuous process in Pedalite, and we have formal reviews which, you know, you know, will will make sure that these kind of number of SKUs or nonperforming SKUs are weeded out. However, we need to be a bit patient. Many of the investments we make and many of the categories that we are in, that requires a little bit of patience to get growth. So what we don't want to do is, you know, weed them out too early or too soon. So we make that balance, and we want to obviously make sure that those non performing SKUs over a longer period of EBITDA, and we do that. That's a continuous process. Sure. Sure. And just one last question, if I may ask. You know, in terms of the the pioneer categories, you know, we have golf, Jovat, etcetera. And as Purva rightly mentioned earlier, this you know, the construction chemicals is like a very broad category and with the very different end users. So two questions here. I mean, are there opportunities to address some of these white spaces through inorganic growth? And secondly, on some of the categories like Jawad, which apparently appears to be like a b two b category, but there is a b two c market, how do we address the branding part over there? Puru, would you like to take this? Yes. So I think in terms of white spaces, you know, as you know, in construction chemical, just in last one year, we have done three inorganic things. We did, you know, two joint ventures, one with, you know, one with the two companies in Europe in terms of construction chemicals. And we also did a majority acquisition of of a tiling and stone chemical company in India with brand name 10x. So there are clearly opportunity and white spaces, and we have been active in that. And we we continue to scan the market for suitable opportunities. As far as second question goes, you know, the Juwaz product are largely b two b related product. They are joinery product, but they are, you know, they have a very strong brand recognition in that segment. So, largely, their consumption is b two b, which is largely by joinery. There is not much b two c kind of a consumption opportunity. It is not a it is not a retail kind of a product. It is a product that's used by joinery. So there is no branding related conflict or any issue that we see. I completely agree, Prabhat. As we have discussed earlier as well, you know, if you look at the MDF market, there is part of the MDF market which is also becoming more b two c. So from that perspective, long term, is there an opportunity to, you know, grind some of the Jawad products in line with our self of black college? We don't see that as necessary, but we will evolve the strategy as and when it's required. As of right now, we don't we believe that there is a need of the that brand in the retail market. But, you know, in future, anything can be done. So we have semi call in retail, which services most of the applications. Yeah. So I think I think Thank you so much. Sure. Thank you so much. Thank you. Our next question is from the line of Ritesh Shah from Investec Capital. Please go ahead. Yeah. Hi, sir. Thanks for the opportunity. In the initial remarks, you made a point of extent of discount versus premiums. Sir, how should one read into this balancing aspect going forward? Discount versus premium products? Yes, sir. I think the initial the initial I think you were asking about premiumization of product. There is nothing called discount. You know, our what I was trying to answer is our our entire portfolio, you know, which our whole all brands are, you know, premiumly priced, premiumly positioned. So it's not that we have a discount or anything of that nature. I think the question earlier was, are we seeing, you know, the trend moving more towards regular or more towards premium? Okay. That's Did you have a follow-up question? No. Not on that. I have another question. Sir, this is in season to the significant part of the sales mix. From a chemistry point of view, how do you see this evolve going forward? Like, we understand BBA is something which is big. But what is the thought process of chemistry wise, the evolution of adhesives and sealants as a basket for us going forward? No. Chemistry wise, you know, the adhesive and sealant chem new chemists work time to time, and, you know, then we introduce various product to to beat the evolving chemistries. Over a period of time, if you see in Pedialyte's journey, which we started with one product, which is, you know, polyvinyl acetate based white glue. From there today, we cover a wide number of chemistries which have been introduced over a period of time. And that process continues. You know? As you know, we we you know, r and d and innovation is very important for PD LIFE. We have an r and d center in US, Singapore, and a a a large r and d center in India as well. So we continue to keep track of new chemistries, work on them, and develop products. Correct. But, sir, do we have any targets in mind to reduce the exposure that we have to how we call it? It is our mainstay. But if one had to derisk or diversify into this particular segment chemistry wise, do we have any targets over here running new product launches that we are that one should expect? No. No. What a period of time as I said, over a period of time when the company started really with FeliCall, but over a period of time, the the dependence on FeliCall has come down significantly. We have now large number of product portfolio product categories. And within adhesive and sealant, we have several large brands with different chemistry, like Feliquick with a different chemistry, MC with a different chemistry. And even within Feliquil, there are different chemistries which operate. So so so, you know, we are no longer dependent on any one chemistry or one product. Alright. Fine. Thank you so much for the answers. Sure. Thank you. Our next question is from the line of Arun Bhat from B. B. Capital. Please go ahead. Hi, sir. So you did mention that we have seen double digit growth in in within India, which is, like, 30% of our business. Can you just show some light on the remaining 70% of the business? How that has panned out in the last few months, particularly? Yeah. So, you know, obviously, what we wanted to give you with the highlights, you know, obviously, we are in in the new quarter in July. So, obviously, the details of this quarter, we will be covering in the following quarter's presentation. But, really, what we wanted to call wanted to give out other areas where, you know, where we are seeing positive momentum coming through. And we also said that there are parts of our business, like the metros, where there has been an impact and there has been a continuous impact. So even there, we have seen recovery happening. So these are the two parts from a geographical lens and from a product sort of portfolio lens. The two two areas like DIY and construction where we have seen double the where we've seen, you know, significant growth return in the last two months, we've called that out. The remaining portfolio has recovered, but, you know, it's it's not at the same level that, you know, we would we would say as the remaining part of the portfolio, which is why we have called those two out. Right? So there is nothing further we have, you know, in terms of split, in terms of information. So the reason why I asked this was because last year, in in q two specifically, we did see the growth in our CVG business. We had negative growth in that business. So the base is favorable. And on that context, the question was more interesting is that, you know, are we seeing, some more traction, because of the low base still? What I'm trying to, what I get from you is that low despite the lower base, it doesn't sound that the whole portfolio has, you know, come back to some sort of stability. Am I is my inference correct, sir? No. I I didn't exactly understand your question. You're saying last year, q two was the base. We had a negative volume growth in last year. So the base is very favorable for us for this q two. And, you know, is that helping to some extent the numbers to be better for us? So I think what we called out was June and July together. We are not really talking about, you know, q two, you know, as a guidance or anything. We're just giving you the signals of what we are seeing in the market. As we said, again, August and September, how it will pan out is, like, it's anybody's guess. But whatever we have seen and whatever we have experienced, we have called out here. Okay, sir. Thank you. Thank you, ladies and gentlemen. That was the last question. I now hand the floor back to the management of Pedalite Industries for closing comments. Over to you, sir. Over to mister Parekh and mister Menon for closing comments. Yeah. Just wanna thank everybody for taking the time out, and wish you and your extended groups, you know, you know, please stay safe, and good luck. Thank you. Thank you, everybody. Thank you. Thank you, members of the management. Ladies and gentlemen, on behalf of B and K Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.