Q4 18/19

May 15, 2019

Ladies and gentlemen, good day, and welcome to the Pedalite Industries Limited Q4 FY 'nineteen Earnings Conference Call hosted by AXIS Capital. As a reminder, all participant lines will be in a listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Anand Shah from Axis Capital. Thank you, and over to you, sir. Yes. Thanks. Good evening, everyone. And on behalf of Axis Capital, I welcome you all to the Industries Q4 FY 'nineteen earnings call. We have with us the senior management represented by Mr. Poova Parekh, Executive Director and Mr. Peet Ganesh, the CFO. With that, I'd like to hand over the call to the management for opening remarks. Thanks, and over to you. Thank you, Anand. Good afternoon, everyone. The current quarter has seen some moderation in growth as a result of lower near term market growth. We have delivered double digit volume growth for the fiscal twenty eighteen-nineteen. Gross margins have improved sequentially and are now close to gross margins of q one FY twenty nineteen. Price increases taken during FY twenty eighteen, nineteen coupled with softer input cost is expected to aid further improvement in margins going forward. We remain optimistic in the medium term of delivering consistent, profitable, volume led growth. I will begin with the summary of the financial performance for the quarter and year ended March 2 thousand nineteen for the stand alone business. Coming to sales, net sales at rupees 1,367 crore grew by 8% over the same quarter last year with underlying sales volume and mix growth of 2.5%. This was driven by a four percent growth in sales volume and mix of consumer and bazaar products and a 1% decline in sales volume and mix of industrial products. Volume plus mix growth for half year H2 FY 'nineteen is at 6.8%, driven by a 8.8% growth in sales volume and mix of Consumer and Bazaar Products and a 1.7% decline in sales volume and mix of industrial products. Comparable net sales for the full year twenty eighteen-nineteen stood at INR 6,048 crore and grew by 15% over the previous financial year. Coming to the gross margins and EBITDA. EBITDA before nonoperating income stood at rupees 263 crore and grew by only 3% over the same quarter last year, given the input cost led contraction in gross margins by 2%. However, gross margins have improved by 3.1% versus quarter three FY 'nineteen and is now close to gross margins of q one FY 'nineteen. The current spot price of our major raw material that is VAN is about $950 as compared to the quarter three consumption cost, which was over dollar 1,100 on account of higher cost RM inventory. EBITDA for the financial year 02/1839 stood at INR $12.98 crore and was flat over the previous financial year, given the input cost led contraction in gross margins. Profit after tax stood at INR $2.43 crore and was higher by 2% over the same quarter last year. Current tax for the quarter includes rupees 53 crore being excess provision of earlier years now written back. Excess tax provisions return back in q four FY '9 FY '18 was rupees 46 crore. Profit after tax for the full financial year 02/1819 stood at rupees 979 crore and grew by 3% over the previous financial year. Now I will move to a summary of the financial performance for the quarter and year ended March 2019 for the consolidated fiscal year. Coming to sales, net sales at INR1631 crore grew by 11% over the same quarter last year. Comparable net sales for the financial year twenty eighteen-twenty nineteen stood at INR7035 crore and grew by 17% excluding the sales of Cyclo division of Pedalite USA Incorporation, which was sold by Pedalite USA in June 2017. Gross margins and EBITDA. EBITDA before non operating income stood at INR279 crores and grew only by 2% over the same quarter last year, given the input costs led contraction and gross margin. EBITDA for the financial year twenty eighteen-twenty nineteen stood at INR $13.76 crore and grew only by 2% over the previous financial year. Profit after tax at Rupees $2.37 crore declined by 4% over the same quarter last year. Exceptional items represent diminishing and impairment in value of investments for the quarter ended March 2019 amounting to rupees 11 crore and for the full financial year amounting to rupees 18 crore. Current tax for the quarter includes rupees 53 crore being excess provision of earlier years now return back. Excess tax provisions return back in quarter four of the previous year stood at INR 46 crore. For the full financial year twenty eighteen-nineteen, profit after tax at INR $9.28 crore declined by 4% over the previous financial year. Moving on to our subsidiaries performance. Our domestic subsidiaries recorded a sales growth of 24.9% on a like for like basis, while international subsidiaries grew by 8.4%. Our subsidiary, Neenah's, net profit was impacted by a provision of INR 4.4 crore made against a fixed deposit of INR 8.8 crore placed with the ILFS Group. The fixed deposits placed with the ILFS Group now stands fully provided for. Many of our focused international geographies, including Bangladesh and Sri Lanka have reported reasonably good sales growth. EBITDA across some of the international subsidiaries was impacted by high input costs and foreign exchange fluctuations. We continue to remain focused on SAARC, Middle East and Africa markets as our growth drivers in the international business. We can now open the floor for questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Questions. We have the first question from the line of Avi Mehta from India Infoline. Please go ahead. Hi, sir. Just two questions. First, I wanted to understand, you know, could you help us understand what exactly is the reason that you saw such a sharp moderation from the April levels? And has there been any improvement from those levels, which is what gives you the confidence to sell? Or would you still is it still very volatile? Just if you could kind of give any color on that front. So if you look at consumer and Badaj growth in Q4, the volume growth was about 4%. One reason for lower growth was the price increase that we took in December, whereby in some of our key products in Semicol and Construction division, we had done price increase. So that resulted into higher sales growth. If you look for second half, the growth of Consumer and Baja product, the volume growth was about 9%. So I think one quarter, we don't manage quarter to quarter. So I think the second half is a better indicator of what we have. Going forward, I think it's too early to say in the new quarter, currently in short and medium term, there is election and other factors. But overall, we remain cautiously optimistic about growth improving. And second half of the year is a better indicator than just the last quarter. So when you say second half is a better indicator, you're you're saying that would be the trajectory growth should trajectory or anything as you know, that that could be mean like giving a projection. But I would say that's a better indication of how we have grown in the year not just look at the last quarter. Sir. So, sir, second bit was on the pricing bit. Has there been any pricing action in the market during the quarter or till date in terms of given where the demand environment or the input cost is? In any of the major product. We have not had any price increases or decreases in the last quarter. The significant price increase was done in December 2018. But now as you have seen, we have had a fairly significant sequential improvement in gross margin. So currently, there is no need to now further increase the prices. And sir, how is the channel held? Any concerns or all is well over there given liquidity, etcetera, concerns that other players are highlighting? See, we are not highlighting anything insignificant other than by saying that there is some near medium term demand challenges that we have seen in the last quarter or some amount of it. That is same. And once that happens But otherwise, our channel in particularly having any any you know, I I would not say that. Basically, it's it's the demand which results into lower offtake from the channel. Okay, sir. Where that's coming from? Sir, is the VAM four q average I didn't get? If you could just highlight that. That's all from my side. So so quarter four, our consumption cost was over $1,100. Oh, quarter four was 1,100. So there has been a significant correction from even that level. Okay. Yes. Yeah. Probably, level because And quarter three was a force of 1,300. So there was a correction in terms of consumption cost versus quarter three. Quarter four is much lower, and we expect going forward, it would be even lower. Oh, so so that essentially gives us some room or headroom in the gross margin side as well to kind of manage. Would that be a fair understanding? So there should be some leaving, or how should I look at it from a gross margin going forward? Is there a cost element that was there? What Ganesh is trying to say is that the reduction which will happen from the current spot rate, that is not fully factored into the gross margin of the last quarter. Because our consumption rate of in the fourth quarter is about $1,100, while the current spot rate of Baham is about $9.50. Oh, so there are more tailwinds over there in the gross margin side. Okay. And then typically, since you also end up holding some inventory, any price reduction and spot prices will actually kick in a while later, typically into the following quarter. Okay. Okay. But, I mean, essentially, that's where the trend trajectory is on the gross margin side. That essentially gives us some comfort. Okay. This moment. Yes. Perfect, sir. That's all from my side. I'll come in the queue if there's anything else. Thank you very much. Thank you. We have the next question from the line of Amnish Roy from Edelweiss. Please go ahead. Sir, thanks. My first question is on the industrial product. I see in q four and full year, both the profits dipped. Has the entire industry not taken commensurate pricing increase? Or only you have been cautious and tried to gain market share? Could you elaborate that? Yes. Industrial product, any years, if you see historical also, when there is a significant increase in input costs, it does take an impact on the margin. And we as a company are a little bit more cautious about not doing business, which is very low in margin. So it is not about us trying to take share or anything. The input costs have gone up, whatever input costs that went up had an overall impact. And also that business depends a lot on mix. So you cannot exactly compare one quarter from other. But if you look at year by itself, the increase in input costs had an impact on the margin of the business. And as a company, we are now focusing on for last few years, focusing on a better margin portfolio within the Industrial product. Sir, two follow ons. So when does the mix change start impacting numbers? Second, you said WAM has corrected further from q three to q four and further now. So is that the main raw material we should track even for industrial products? And when there is a sharp cut in the raw material price being b two b, does this segment see sharp pullback in margins? Or because it is b two b, the pricing power is very limited, so you need to pass on the cut the cut in the raw material prices? So b two b business, the pricing power, obviously, is lower than consumer and partner product. So B2B business both when the costs go up, it does take a little bit time for consumer to accept the price increase. And also there is competitive factors at play. So overall, our leverage and our ability to pass on price increases is not as strong in consumer and bashar product. However, we as a company are very clear of the margin range in which we want to operate even within industrial product. So it sometimes can impact our business because we will not do business at lower margin. So that is the answer on it. As far as the demand as far as when you see the impact in product mix, I would urge you to go back over last five years. If you see our business had fairly low EBITDA with the profit margin in Industrial business, that has been steadily going up. Again, last couple of years, you guys corrected a bit, but it's still higher than what it was four to five years ago. Sir, I couldn't get full clarity. So my question was when raw material comes down, then what happened? You answered on not able to pass on the inflation happens. But my question was on the other way No. When it goes down, the customers are more demanding in terms of asking for us to cut price. Also, is involved. So whenever there is a reduction in raw material price, it would generally help us, but we will not be able to retain the full impact because the other competitors are also involved and consumer is aware that the cost has gone down and he immediately will ask us for reduction. But however, still, if you seek a material cost goes down, it could help us a bit, not the entire benefit would flow into us. We will have to pass on fairly quickly some amount of the cost reduction. But second question is on Egypt and EMEA. Now Just fact, in finishing that point on Industrial, with our focus towards more specialty products and with our focus on focusing towards higher end of the margin, the improving both customer and product mix is critical to improving the overall margin of this business. And sir, that's helpful. Coming to international business in Egypt and EMEA, we are seeing this quarter loss, full year loss and last year also the same trend losses. So for two years and quarter on quarter losses, so what what is the plan here long term? Do you want to remain in these businesses? Especially Egypt is a very small business anyway. Would you exit also at some stage? Let me answer the Middle East first and then come to Egypt because Middle East has a larger loss. In Middle East, you know, what has happened and I you know, we had talked about this in the past call, is we had started you know, we had sort of made an effort to, you know, grow our construction Construction Chemical business. We had hired a set of people. We had commissioned a new part of our manufacturing plant, and we have been investing to grow in that Construction Chemical business in that market. Now that side of the business has not done very well because, again, a bit of slowdown in the market, significant competitive pressures. So what we have done is we have, in the last year, scaled down the business, and we have reduced our expenses. And hence, if you see, the overall losses have come down. However, we still believe it's an important market and we want to continue to make effort to see whether we can succeed there long term. So in that process, we are incurring some losses, but it's a very large and important market. And if we succeed there, it can have a greater sort of benefit across other geographies as well. So we remain we still want to do a bit more work there. However, in the short term, we have reduced some of the expenses and hence the losses have come down. What is not showing in this number fully is the export that we do from India of our consumer and partner product to that market. Now that business is doing fairly well, but bulk of the profit of that business is captured in India, where we export Feliqol and other products to that market. That business is doing well. Egypt business Egypt is a question mark. The country has gone through a lot of ups and downs. It's a difficult market. But in terms of our long term strategy of creating a successful business in Africa, I think we need to stay committed for a few more years. We are continuously trying to evaluate what strategy can help us succeed there. But it's a small business, it's small loss, but I think it's important from a longer term approach. So as of right now, we are committed to Egypt as well. We have set up a good manufacturing plant there, but that country has gone through a lot of ups and downs and difficulties, we want to persist for some more time. So my next question is on the new product strategy. So Pitilak clearly wants to have a lot of growth coming from the new products launched in the last three years. So could you quantify how much of the growth or how much of the sales is coming from new products of the last three years? And which are the products you actually want to name in terms of success? Because that's the key growth driver, and that's difficult to track in your business because it's not that visible. So if you could clarify. Yes. So right now, we are not quantifying the numbers. I will not share a number. But just to give you idea, and I may have said this in some of the earlier calls as well. But if you look at a product like Kitex, which is a Kitex and Hyper are two new variants within FERVICOL, which have done extremely well. There was one more variant which was introduced last year called FermiCol Easy Spray, which is a sprayable adhesive. So if you look at these three variants within FermiCol, all with distinctly superior properties have all done very well in last couple of years. Some new products we've introduced in our Tiling portfolio, which are the Tiling is growing as a fast emerging segment. Some of those products have done well. So this is just to give you some examples. And these styling and hyper products will be higher gross margin than the company average currently in the consumer, Bhattar? Hyper both are comparable. I would not say they are higher because overall, our margin portfolio is quite good, but these both are also in that ballpark, in that range. And the last question, VAM has corrected significantly. What would be your pricing currently based on the current scenario? Have you taken in the past some price cut also when sharp correction in raw material happens? Because that does disrupt the trade distribution channels. So if no, will it be fair to assume sharp gross margin expansion in coming quarters in Indian consumer, other? In the past, when there has been significant reduction, if you remember, when Walmart gone up to $1,600.03 or 4 years ago, And after that, there was a sharp correction. We had passed on some of the price reduction. So while it may create some channel disturbance, but there is some expectation of channel that some amount of reduction is passed on, especially when there is a very sharp reduction. So that is what we have done in the past. Going forward, we are closely watching and we are seeing what would be the device scenario. And if there is a need, we may pass on some of the reduction at discount or in some other manner. So it is something that we very closely watch. And if there is a need that we believe that it is it is it is necessary to pass on some reduction, we will do that. But till now, nothing has happened. Right? Till now, we have not reduced the price. No. We may have increased some discount in some products, but there has been no reduction in price as such. Okay. Okay, sir. That's all from me. Thank you. Thank you. We have the next question from the line of Amit Rohit from CIMB. Please go ahead. Yeah. Good evening, sir. Thank you for the opportunity. Just on this construction chemical, based on your presentation, we see construction chemical growing a bit slower than the adhesive segment for FY nineteen. And also on your comment, as far as the Neenah business is concerned, you indicated that it did do well because one higher base and some challenges in market conditions. So can you explain some more on this market condition? Are you referring to demand or you're referring to competition? You are asking about our subsidiary 9%? Correct. So I'm referring to actually the construction chemical market. Is is it more to do with the demand conditions being challenging? Or is it competitive intensity that is So just to give you an idea of what Neenan Percept does, Neenan Percept are waterproofing services company. So they are large contracting company, which do large waterproofing projects in both the building segments, commercial buildings with real estate, with residential building, commercial building, factories, etcetera. So it's a waterproofing contracting company. Yes, that segment in segment, particularly large builder segment and some of the construction segment has seen some stress. So we are a bit more cautious about the type of business to be done and that has had some impact on the growth in the last quarter because we do want to be cautious in this segment. But overall, if you look at year by itself, the growth has been very good. We cannot obviously this is a small business and its quarter to quarter numbers are not very indicative, especially because it depends on the amount of work which is finished in the quarter. But there is some strength in the as we all know in the large builder segment and some of the segment, there is a stress, and we are cautious about it, and that would have had some impact on the growth in the fourth quarter. Also, if you see the base of last year, the last quarter sales base was quite high, and that also had an impact on the growth. By itself, if you see the sale of the fourth quarter is comparable to first three quarters. Sure, sure. Thank you for this explanation. Just on the would I have would this have some effect on the overall construction chemical market also for FY 'nineteen or in the fourth quarter for I mean, you said No. I will not speak to Neenah in percent to this because Neenah in percent is largely involved in large construction as a segment. So they are involved in large construction, while at our CC Retail, which is a part of stand alone, is not into There is some sale which goes into larger projects, but bulk of their sale is retail and into medium and small projects. So there is no direct correlation between the two, but both will have some impact because of the stress in some segments of construction. The impact will be bigger on the 9%. Sure. Thank you. Thanks a lot, sir. Thank you. We have the next question from the line of Chintan Shah from from Investec. Please go ahead. Hi, sir. Thanks for taking my question. Sir, I wanted to understand how the industry has done. I mean, we saw the decline in volumes because of price hikes, but have the other players also facing the same thing? Or how is it? Chintan, we don't have data of other companies, I mean, what they have done because they are not published in terms of what is the data. But I would again urge you to not look at quarter and give quarter is just a period of three months. If you look at second half by itself, the consumer and bhaja product business has grown by 9%. If you look at full year, our volume and mix growth of consumer and bhaja product is 12%. Now if you look at any GDP growth and estimate, we are almost talking about close to 2x of GDP growth. So if you look at year by itself, we do not believe that we have lost share in any of our major category when our growth is almost 2x the GDP growth. Even for second half by itself, the growth of consumer and partner product is more than 9%. Okay. Okay. So the industry growth is strong, right? So industry is growing right? Yes. Again, I think quarter to quarter, it's very, very difficult because there are a lot of factors at play. Price increase is our internal factor that we have done. But overall economy can have some changes in terms of the consumption and demand. Lot of factors are at play in terms of channel, in terms of end user, in terms of overall demand scenario, labor availability. So a lot of other factors can have a short- to medium term impact. And hence, I would urge you to look at a slightly longer period, which is preferably one year to get the right idea or at least the last six months. Thank you. We have the next question from the line of Ashish Shah from Tata Capital. Please go ahead. Sir, thanks for the opportunity. Sir, my question is Mister Shah, I'm sorry to interrupt. You may have to be a little loud, sir. Yeah. So thanks for the opportunity. My question is that our bank cost would be around $9.15 q 1 based on the inventory hold. But what would be the spot price, the 50 price, which we indicated is the current spot price. What we are seeing is while the consumption cost in q four was 1,100, given given where this power spot prices have been currently, you should see a sequential production from your from the levels you have seen in q four. Okay. So to the spot price as well as the inventory I mean, the price based on the inventory both are at $9.50? So so, again, I'll see $9.50 is a indication of what the current market price is. Mhmm. What we what we are saying is that at in q three, our consumption cost was as high as 1,300 plus. Mhmm. That's come down by more than $200 when we look at consumption cost of, q four. And looking at where VAM prices have been in the near term, we should see a further reduction when we get into q one. So $9.50 is a new purchase price. It's a new spot price. Our closing inventory, the stock available would be would be higher than $9.50. Got it. Got it. Fair enough. Less than 1,100 per higher than $9.50. Got it. Fair enough. Sir, my second question is that we have taken an impairment of around 11 crore this quarter, of which 4.4 crore, I understand, is related to INFS. What would be the remaining impairment for? Remaining remaining impairment is also impairment of some of the investments made by our subsidiaries. Sir, can you highlight the two names? Because, I mean, the 6.6 crore of in impairment apart from So the investment is, you know, we had done a a we we had invested a company, a waterproofing contracting company in Middle East. So we had acquired a stake in a company there with a small investment less than INR 5 crores with an objective that if that company does well, we can increase the stake. So that company has not done well. That is into waterproofing contract, similar to Nimra per set type of business but operating in Middle East. Okay. So it's an equity investment, not a FD or something like that where No. This is an investment. This is a strategic investment in a waterproofing contracting company. And there, the first tranche of investment was small with the objective. If that business does well, then we can increase the investment. But as the business not done well, we have impact that investment and decided not to invest anything further into that business. Fair enough. Thanks a lot. Thank you. We have the next question from the line of Jay Doshi from Kotak Securities. Please go ahead. Hi. Thank you. This is small bookkeeping question. On crude, there are other crude related raw materials, how is the index moved between March and currently? Are you seeing similar tailwinds on other raw material basket also? So generally, yes, I think if you look at other raw material items like acrylates or solvents like toluene, we are seeing reductions. But there are some specific raw material like polyvinyl alcohol and all, but there, we are not seeing that reduction. But across the board, if you see, yes, we are seeing reduction in number of raw materials. That is helpful. Thank you so much. Thank you. We have the next question from the line of Pranav Venerkar from Rare Enterprises. Please go ahead. Oh, hi. Thanks a lot. Sir, can you can you elaborate a little bit on proportion of industrial revenue as a total revenue because if you see global brands like Sika or Henkel or Bostik, their industrial proportion of items is much higher than the consumer or retail proportion. And would you see yourself going in that direction over the ten years? No. If you look at you are if you are asking only about adhesives and sealants, then, you know, we have that breakup in annual report. I think our adhesive and sealant consumer and craftsman adhesive and sealant is about 50% of our turnover. Just one second. It's about 56%. So and industrial is about 4%. So if you look at our total turnover of 100, the branded adhesives and sealants is about 56% industrial adhesive is 4%. Yes, you are exactly right. Company like Henkel and some of the other company have greater focus on industrial adhesive, and hence, their contribution of industrial adhesive is much larger. While a key as a company has become very successful in branded adhesives and sealants, our focus is more on consumer and craftsman market, and hence, our proportion of that is much higher. So, sir, the that nature of the two businesses are very different. So so that is the case. Sir, I I actually understand that, but I am just asking from a market sizing perspective that is there is there a much greater opportunity in industrial adhesives and there is a glass ceiling in consumer adhesives? Is there a case like that? See, it is it is there are two ways to look at it. What I'm trying to say, industrial adhesive is, yes, it's a large market. It is not larger than consumer and craftsman in India. In India, and craftsman market is larger. We have a more significant share in that, but we believe that is a strength. And that market also will continue to grow at reasonable growth rate. Our share is lower in industrial adhesive, but that doesn't automatically mean that there is a larger opportunity. That is our market position, that is not as strong in consumer and craft craftsmen. And we as a company are focused on both, but we you know, our our our greater focus is on consumer and craftsmen, at least. Right. Right. So so per capita, retail consumption in India, it's still a lot to grow. We believe that there would be steady growth, and we have been seeing that also that our craft area there is, first of all, the penetration and consumption level in India are low. And hence, we believe that the branded or consumer and craftsmen adhesive will also continue to grow at healthy rate going forward. Okay. Thank you, sir. Continue. I don't want to say we continue to also work hard at industrial adhesive portfolio, and we are upgrading our technology and doing a lot of things in that space as well. So that provides us a good growth avenue, but that is a segment with greater competition both from multinational and Indian companies. Right. Right. Thanks a lot, sir. Thank you. We have the next question from the line of Rachi Kaurikal from Bay Capital. Please go ahead. Yeah. Good evening, sir. My question is related to the finance cost. On a full year basis, if you look at the finance cost, it's almost gone up by 70% on a consolidated basis. Can you tell us what is this related to? Yeah. So the primary reason for the increase is on account of the option valuation of our investment in CP, where we have the right to acquire the balance 30%. What in the India requires is that the potential liability on account of this 30%, this is valued and then discounted to the present value. So it results in an interest unwinding as the years go by because this ride kicks in at a later point in time. So while it is a noncash item for the year, what it means is that it's actually bringing in the present value of the future liability through the P and L. It's a in the adjustment. Okay. Got it. And the the other question I had was on your industrial segment. In your last quarter, you had mentioned that there was a lot of price and the cutting going on by the competitors in the industrial segment. And now that we're seeing the van prices cool off, do you think this would intensify further? No. Industrial business by itself, the nature of it, it is competitive. Both when there is an already cost go up or go down, it's a competitive segment. So the competitive intensity, I would not say will it remains competitive. When it goes down, people have a greater room to be competitive. But the nature of that business is more competitive. Okay. Got it. And just one more question. On the construction chemical side, could you give us a break up of how much of it would be b to b and how much of it it would be b to c? Bulk of the business is B2C. There is a spot. So I'm talking to the B2C stand alone and the subsidiary separately. If you look at our subsidiary, MENA and Percept, it's largely B2B. Okay. If you look at our other subsidiary called CP also, it's largely b two b. Okay. As far as our stand alone construction, paint, and chemical business goes, bulk of it is b two c. By b two c, I mean, consumer or craftsman. Okay. And some amount of it will be b to b. Okay. Got it. That's my idea. Got it. Thanks. That's all from my side. Thank you. We have the next question from the line of Atman Ajmira from Nordea Asset Management. Please go ahead. Hi. Thank you for taking my question. I just have one from my side. My question is more on on the long term margins, not about this quarter or the next quarter. But, structurally, when I look at the van prices, let's say, in 2015 spot prices, the gross margin was close to around 45%. And for similar levels levels right now, your your gross margins are are significantly higher. So is it fair to assume that for the same van prices, you'd structurally be able to increase your gross margin by product mix or something like that? Or is that a wrong interpretation? No. I don't think it's a correct interpretation of the I think maybe the time of the same VAM prices may not be the same. When when last time the VAM prices had gone to $8,900, our gross gross margin was fairly high. So I I maybe maybe there is a timing or a quarter or two quarter difference. Okay. So I I can't assume that, let's say, four years out right now, if we get the same time prices as today, we can't assume that the gross margin will be structurally higher. That's not the right way to look at it. So what I'm trying to say, I think structurally, you said whenever VAM is at this kind of levels, our gross margin generally are better. So if you look at a five year period and see the period of very high VAM prices versus low prices, it will have correlation with the gross margin. I'd say you may not have got the timing correct in terms of the spot price and the gross margin. Mean, there could be quarter to quarter difference because of inventory or something. But whenever the VAM prices go to, like, 800, $900, our gross margins are at the higher end of the bank. Understood. But I think maybe I wasn't clear the question. I was saying, let's say, is thousand today, and you have a gross margin of 45, is it example. The next time it's thousand, will the gross margin again be 45? Or maybe five years out for the same VAM price, it might be at 47%. Five years out is very, very difficult to say about the product mix and what pricing actions we have taken and things like that. So it's very, very difficult to say what would be there five years down the line. Fair enough. Fair enough. That's all for me. Yes. You. We have the next question from the line of from ICSA Prudential Life. Please go ahead. Thank you for the opportunity. Sir, as you mentioned that h two is a better indicator for the business performance. So from h two situation, have you seen any change in momentum as far as business is concerned, either positive or negative? This is first question. And the second question, any margin guidance range that you used to give and whether it would be led by gross margin expansion or operating leverage, if any? I'll answer the first question. The first question, I think the demand is just a new year and just started in barely thirty, forty days plus also this is election period right now. And hence, think I would not like to comment on the demand scenario in the current year. But yes, on the first point that you made, the second half of the year is a better indicator. It soothes out the impact of price increase and other things. And hence, it's a better indicator of our growth scenario last year. But current year, it's too early to comment anything, and you'll have to wait till end of quarter to get some idea and possibly end of the year to get end of half year to get even better idea. So is that gross margin, Duresh, you want to say about the range in which we operate? Operating margins, typically, if you look at the EBITDA margins, we have over a medium term operated in a typically 21 to 24 kind of EBITDA margins. And we have also seen years where it has gone a bit higher than this or a bit lower than this, but this is a kind of range which we are comfortable operating in. And that's that's from a medium term that we have consistently guided. Okay. Okay. Perfect. Perfect. But so my point is the investment that we do either through other either through overheads or marketing spend. So my point is do will we see any operating leverage, or we'll continue to spend on marketing and employee strength? That margin expansion would be led by gross margin expansion or operating leverage? It would be primarily led by gross margin because, you know, gross margin with the the the material cost is our biggest cost head, which is almost 50%. And hence, the biggest benefit would be in the gross margin would be both from pricing action or the raw material cost reduction. We will get some leverage, but as a company, we are still focused on driving consistent double digit growth. We are investing in building up capabilities and building up our brands. We want to create new product categories to accelerate our long term growth. And hence, we do not expect to get significant leverage out of, say, staff cost on advertising and promotion and some of those expenses. Perfect. Perfect. Okay. Thank you, sir, and all the best. Thank you. We have the next question from the line of Amit Sanaa from Macquarie. Please go ahead. Yeah. Hi, sir. Thanks for the opportunity. When I look at your presentation of last year same quarter and and this year, especially the page wherein you have given the the overall sales contribution of each of the category, I I get an I get an impression that, you know, give and take, the Adhesive segment has done better than the overall Construction Chemicals segment. I mean, I'm basing my argument based on the contribution sheet again. I might be wrong. But yeah. I mean, for the overall year FY '19, have you seen better growth in adhesives and sealant subsegment compared to construction chemicals in in consumer in Qatar? So both of these segments have done well in the last year. Yeah. Done well, I understand. But it looks like that adhesives and sealant has done better than construction chemical. What you're seeing over here is there are marginal variation where you see other things and seasons going up a little bit and hard cut material and others going down a little bit. That's not for construction. Yeah. So so overall, if you see whether it's other seasons, whether it's construction chemicals, means they all they've all done, both of us equally well. So across the board, most of our divisions have done that. Right. Right. And basically, in the context of your overall medium term to long term guidance of of construction chemicals doing better compared to, you know, adhesives and sealant segment. So basically, my question was that, and was there any kind of one off or was there any kind of moderation which you have seen in especially Doctor. Fixit as a category? So if you look at Construction and Paint Chemical, which was 20%, is again 20%. So there is no change in that. Adhesive and sealant have changed from 55% to 56 So that's a very minor change. Construction, paint chemical has grown at the company level. Again, you know, this doesn't have decimal. Maybe next time, we will have one decimal here to give you a better idea. But there is no significant change. So I mean, this data does not indicate and paint chemical have have underperformed or anything of that nature. Agreed, sir. But you have guided for a better growth in construction chemicals? It is both construction and paint chemical there. And and, yes, we we do believe that construction chemical, we have guided better. And also one more thing, Redis and Sealant, last year, the price increase element was higher than Construction and Clean Chemicals. Okay. Got it. Got it. And my second question is on while I understand that the current spot prices of VAM is $9.50 Any kind of commentary you would want to give on the overall VAM prices expectation going forward in the next six months or next one year, depending on the demand supply scenario globally? Amit, you have seen how the VAP prices fluctuate. So it's very, very difficult to give any projection. VAP prices have some linkage to oil prices and also demand and supply scenario. But there is a very active, like in Q3, Q4, we were at $1,314,100 dollars and now we are down to $951,000 So there is a significant fluctuation that can happen in lump prices, and hence, we would not like to hazard a guess over the next six months to one year. No. What we have been no, you are absolutely right. I mean nobody can guess the prices. But what we have been what we understand from some of the pockets that China has been has started opening some of the closed, you know, construction chemical plants. So just on on that particular line, is there any I'm I'm sure you would have a much better understanding of the entire demand supply. That's on WAM price. Do you think the Chinese construction companies will consume WAM? Or what are you hinting at? I didn't know What I'm hinting is the supply situation is getting better. See, VAM is a different product. VAM is not made by those companies. So that has no impact on VAM prices. VAM is made by other companies. They are not by Chinese construction companies. Sure. So what I'm trying to say, Vaam, is made by a few manufacturers in the world, two, three in Asia and rest in U. S. And Europe. And, you know, nothing in China scenario has changed anything in that. It is linked to first of all, it is linked to petrochemical means oil prices and other demand and supply scenario. No. Thanks a lot for the answer, sir. Thank you. Thank you. Participants, if you have a question, you may enter star and one. We have the next question from the line of Vipoti Jen from Quest Investments. Please go ahead. Yeah. Sir, thank you for the opportunity. If you could talk about Ica, Pedalite, and CP. In Ica, you've mentioned that you've procured some technical know how and brand from the holding products. So what are those products and what is the outlook for those products? Similarly for CP. And one more for the wood based joinery addresses, what is the performance currently, and what is the outlook do you see for those products? Thank you. So Aika Pudilite is a fifty fifty joint venture between Pudilite and Aika, which is a leading premium wool finishes company in Italy. Correct. And, you know, that joint venture, it has been in existence now for a couple of years. We have set up a new manufacturing plant for this in Jammu sir in Gujarat Yes. Which which will improve the supply chain. The trademark was that, you know, PD LIGHT also had a trademark called Gurfin, which was which was a a brand owned by PD LITE in Gurusinis. That trademark was sold to JV so that all Gurusinis business can be housed under the JV, which is PD LITE ICA. So that is the trademark called Gurusin and which was sold from PD LITE India standalone to our joint venture PD LITE ICA. Okay. Overall, you know, overall, we feel good about this category. We have now excellent product portfolio. We have a manufacturing plant in India. So, you know, we we believe that this business has good prospect. Siti was a leading flooring company in India. You know, all types of flooring, epoxy, polyurethane and other types of flooring, which are used in various application in industries, health care, food, medical industry. Yes. So that's a flooring company that we have acquired. That company had good performance last year. The last year was the first full year with PIDLIGHT. And we believe that this is a category which is likely to see good growth in coming years. Right? The last question, which was about the joinery business. So we don't separately give the figures of our sale in the joinery industry, our adhesive for joinery industry. But now we have a full portfolio of product. PD LITE had a good range of products, and now we have tied up with this company called Jovat from Germany Yes. Which is a leader in this space. So we now have a complete portfolio for this segment, and we are strong in that segment. This segment is growing well. And we are poised to benefit from that given that we have good distribution and reach as well as now we have a good product portfolio. Okay. Okay. Thank you. That's it from my side. Thank you. Participants, if you have a question, you may enter star and one. We have the next question from the line of Kuldeep Gangwar from ASK Investment Managers. Please go ahead. Just one question. What had been the equity spend spending in this quarter and the year, if you can please share? Sorry. Can you repeat the question? Equity spend in the in this quarter and for year? Yeah. So for the year for the quarter, the spend was 4.1% of revenue, and for the full year, it translates to 3.6. Sure. Thanks. Thanks a lot. Thank you. To ask a question, you may enter star and one. We have the next question from the line of Vishal Punia from Motilal Oswal Securities. Just two bookkeeping questions. One is what would be the CapEx for FY 'twenty and the tax rate? Yes. So the CapEx is typically in the range of 2% to 3% of revenue and that we are getting into some additional capacity. You may have it at the higher end of this range and at other times towards the lower end of the range. But typically, this would be the range for CapEx from a near term point of view. As far as tax rates are concerned, we should be in the 32% to 33% range because a couple of units which had tax exemption have also gone out of this bracket during this year. And current year as well as last year, the effective tax rate was lower because of write back of excess provisions of earlier years. So on a ongoing basis, we should be in a 32% to 33% effective tax rate. Okay. Okay. Thanks. Thank you. We have the next question from the line of Dheeraj Mistry from MK Global. Please My question is related to employee expense. What is the reason? If I see for a second half perspective, employee cost has gone up by 22%. Yeah. So as far as employee costs are concerned, we have had a a couple of factors like ESOP, which were given during the course of the year, which is not there in the base. So that's one of the factors which has come in beyond the normal increments as well as our investment is taking in taking on additional resources from a future growth perspective. And also, retirement benefits, actuarial valuation has also had an impact in terms of higher provisioning because of actuarial valuation. So these are couple of events which have actually increased the staff cost growth beyond the normal. Okay. Can you quantify those amount, ESOP amount, and it's is it likely to continue next year also? So ESOPs, I again, what what has been given in this year, it it would start coming into the base. But then going forward, depending depending on any change in scheme, etcetera, you you could have an incremental amount coming in because we have an ongoing ESOP program where annually ESOPs would be given to a certain set of employees, which would then rent, say, over a period of time. So this is something which, in a sense, becomes part of the variable remuneration and from an employee retention point of view. Okay. So last year, ESOP expense was about 10 crores. Right? Yeah. For the full year. For the full year. Also last year, you know, why there is a little higher increase is because of increase in variable pay. As a part of our compensation strategy, we have increased the variable pay to more levels of management in the company. Again, for full year, the total variable pay expense was INR31 crores. So while variable pay and ESOP are not very large in terms of the overall staff costs, some of these are sort of new things that have come in and has had a bigger impact in second half of the year. Okay. And it's likely to continue going forward also? Yes. The same. The compensation strategy would be similar where we will have, you know, a greater number of people covered under variable pay and so on. Okay. And second question related to other expense that that has been flat this quarter. So I think I am assuming that A and P spend has gone up on a quarter to quarter this Y o Y basis. What is the reason being which, cost item has gone down in this quarter? So, if you look at other expenses, this has got a bucket of a large number of items, whether it is clearing and clearing and forwarding costs, whether it's and so on and so forth. It's a combination of multiple items. Okay. Okay. That's it. That's it from my side. Thank you. Thank you. As there are no further questions, I would like to hand the floor back to the management for closing comments. Please go ahead. So I would like to thank everyone for coming on the call. Thank you. Thank you, gentlemen. Ladies and gentlemen, on behalf of Axis Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.