Ladies and gentlemen, good day, and welcome to Pidilite Industries Q2 FY 2018 Results Conference Call, hosted by ICICI Securities. As a reminder, all participant lines will be in the listen only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Rahil Jasani from ICICI Securities. Thank you. Over to you, sir.
Yeah. Good evening, everyone. We would like to thank the management of Pidilite Industries for giving us this opportunity to host the Q2 FY 2018 earnings call. We have with us Mr. Apurva Parekh, Executive Director, Pidilite Industries, on the call. We would now like to straightaway hand over the call to Mr. Apurva for his opening remarks, followed by Q&A. Thank you. Over to you, sir.
Thank you, Rahil. Thank you everybody for joining the conference call of Pidilite. I will start by giving a brief commentary on our results. Net sales for the quarter grew by 11.2%, with underlying volume and mix growth of 12%. This was driven by 15% growth in volume and mix of Consumer and Bazaar products, 1% decline in volume and mix of industrial products. EBITDA before non-operating income grew by 21%, profit after tax grew by 15.4%. On a consolidated basis, net sales, excluding the impact of Cyclo business, which was sold by Pidilite USA in June 2017, grew by 9%. In a challenging business environment, we delivered good overall performance. This quarter saw double-digit growth in underlying volume and mix. We remain cautiously optimistic for the future and remain focused on driving profitable volume growth. We can now start with questions.
Thank you very much, sir. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask a question will please press star, then one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star then two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask a question, please press star then one. We have the first question from the line of Avnish Roy from Edelweiss. Please go ahead.
Sir, congrats on good quarter numbers. My first question is on your domestic subsidiaries. How has Nina, Percept and ICA Pidilite done?
Yeah. Nina and Percept had a reasonable performance in the quarter. These are the two waterproofing subsidiaries. Nina sales grew by about 1%, and Percept sales grew by 16%. The sales were impacted a bit by very high monsoons in many parts of India, and some other issues which have been affecting construction industry. However, the profit growth has been good. This is due to our focus on both margins and cost. ICA Pidilite growth, on a comparable basis, is about 17%. The reported figures looks like a decline of 1%, but that is due to how the GST sales impact is accounted. Removing that, the sales grew by about 17%.
Sir, you expect Nina to recover now? Because in Q1, I think it was a very strong double-digit growth.
You see, it's difficult for companies of this size, I think quarter-to-quarter numbers are not the best indication. As you can see, for first six-month period, Nina sale has grown by 16%, so that is encouraging. However, construction industry is still seeing some stress. Hence, it's difficult to predict on what kind of performance would be there for rest of the year. However, we are taking a lot of initiatives in terms of developing the business of both of these companies. We are expanding our consumer base from builders to lot of other segments. Hence, we are optimistic that these subsidiaries will do well.
Sir, domestic consumer business has seen very good volume growth. My question was, how is the competitive intensity in Fevicol? The GST rate came down, how did that impact the overall inventory? Because rate cut was there, did that lead to a postponement and that's why Q2 would have benefited because of that, and that's a one-off, you would like to call that off? From the larger players who have entered into this, how is the competitive intensity?
In the first quarter, the impact was not about delaying decision or anything like that. Just because of lot the GST related transition issues, a lot of people, especially the channel partners like distributors and dealers, held back their purchases. Our first quarter sale was affected because of GST, which was going to be implemented from July. Current quarter's growth is partially due to restocking by the channel partners. Some amount of growth is due to better demand in this quarter. As far as larger competition goes, the new entrants, we do not believe that any of the new entrants in the Fevicol segment has had any significant impact.
Sir, because of GST, smaller players, are they losing out or are we seeing even reverse shift? We are seeing in some sectors reverse shift happen because hardly any compliance is being implemented in the GST regime.
See, I think it's too early to really say whether the business is shifting either way. I think clearly there is a greater focus on compliance and people are conscious. Even the dealers seem to be more oriented towards purchasing products from companies which are tax compliant. Based on just last couple of months of experience, it appears that people are favoring companies who are GST compliant. How will this pan out? We have to see. It is too early to really say whether businesses have gone either way.
Okay, sir. That's all from my side. Thank you.
Thank you. We take the next question from the line of Avi Mehta from India Infoline. Please go ahead.
Hi, sir. Thank you for taking my question. Sir, essentially, my question was on the sales growth front.
Excuse me. Mr. Mehta, may we request you to keep your microphone a bit away from you?
Okay. Is this better?
Yeah. Thank you.
Sir, my question was on the sales growth. Essentially, if I look at the first half headline sales number that you've given, it's about 5%. You'd highlighted in the first quarter conference call that the underlying retail demand was high single digits in April and May. Does that suggest that demand environment has kind of moderated? If not moderated, could you help explain that? Related to that, why the cautious optimism, is that the reason?
What I had said in the last investor call that our sales in April and in May had grown by about 8%-9%. That was our primary sales in April and May had grown by about that much. Because there is no way for us to estimate what really the consumer offtake is. Hopefully, it would be in that order. Our consumer and bazaar business, if you see for the first half of the year, has had 6% or 7% growth. It's not much different than what was there in the first couple of months of the year. Our industrial product has not done very well. For the first six months of the year, the sale has been largely flat. Even within industrial products, the impact has been greater on the export of our industrial products.
If you see from the numbers, for the first six-month number is not very different from what I had shared for the first two months except for industrial products, where the exports have been impacted.
Sir, in that case, then if you're seeing such a healthy growth rate kind of continuing, why cautious optimism? Would you not argue for this rate to sustain as we go forward? What remains a concern over there?
No. It's just first couple of quarters, GST has just been implemented. Lot of things are fluid for the moment. When we say cautiously optimistic, because 6%-7% is not our growth target. We would like definitely to grow to be in double-digit plus. My comment is not in the context of the current growth rate.
Okay, sir. Sir, my second question was on the EBITDA margin. We have seen an expansion in the consumer and bazaar segmental margins from the first quarter levels. What would have driven that? Has there been a price increase since the one that you indicated in May? Any further price increases?
No. The EBITDA margin expansion is largely due to lower advertising and promotion expenses in this quarter. Our advertising and promotion expenditure in this quarter were lower than normal. Our advertising and promotion expenditure are not uniform across all the four quarters. It depends on the opportunity, or it depends on whether we have planned for production of films or have got a significant campaign on television. For various reasons, the expenditure was lower in this quarter, and that has resulted in expansion of margin. However, our expenditure on advertising and promotion will normalize over the next couple of quarters.
Okay. Sir, any update on VAM, if you could share, that's all from my side. I'll come back in the queue.
The VAM prices have seen an increase. Between June end and September end, there has not been much difference. The prices remain at the same level between June and September. However, after September, the prices have increased a bit. They are now upwards of INR 1,000 a ton.
From INR 920 was the number that was in the first quarter, it's now INR 1,000. Is that how it is?
I'm talking about the prices which are the current pricing. In September, they were again at the same level as June. The second quarter prices were similar to first quarter.
Okay, sir.
Now they are a little bit higher than that.
Okay, sir. I'll come back in the queue for more questions. Thanks very much, sir.
Thank you.
Thank you. We take the next question from the line of Gunjan Prithyani from JP Morgan. Please go ahead.
Yeah. Hi, sir. Thanks for taking my questions. Just to follow up on the previous question, you mentioned ad spends have been moderated. Could you give some guidance where should we look for the ad spends this year? I think even last year our ad spends were curtailed.
Our advertising spend should be around between 3.5%-4% of net sales. Last year they were purely curtailed because there was pressure on top line and Due to demonetization, other factors, so we had controlled some of our advertising and promotional expenditure. However, in current year, the second quarter is not because of that, it's just because we didn't have the right opportunity. For the full year, our expenditure would be in the range of 3.5%-4% of net sales.
Would you be able to share the amount that you would have spent in the first half of the year?
Our expenditure in the first half of the year on advertising and promotion should be about INR 65-70 crores. First half of the year.
Okay. Sir, secondly, just moving to this margin outlook, I just wanted to get your sense on how should we look at it from here on in the sense that we are clearly seeing VAMs prices increase. Also, you will see ad spends increasing in the second half of the year. If we were to look at, let's say, FY 2018 and FY 2019, what would be your broad guidance around the margin expectations?
As we always do, we would not like to give a specific guidance in terms of a number. The biggest factor that could determine our EBITDA margin would be the sales growth. While material cost and advertising promotional expense will have an impact on it, but the largest impact would be on what kind of growth rate we achieve for the balance part of the year.
Okay. If we were to look at the underlying demand trends in, let's say, October, November post the Q2 close, have you seen the momentum that you saw in September quarter sustaining?
No, I think, Gunjan, it would not be right for us to share on how we are doing in the current quarter. First of all, it's early and also it would not be right. We've just announced September results. It would not be right to share the current trend. If you look at the second quarter numbers, the situation clearly is much better than the first quarter, which was impacted by GST. We have seen across the board double-digit growth in most of our product categories. We see that companies like us, which are tax compliant and which have extensive distribution network, it appears that we are benefiting and gaining. Now we need to see how this sustains and what kind of growth rates we get in next couple of quarters. It would give a much better idea.
Okay, sure. Just last question from my side. On the art and material segment, we did see a degrowth last year. Has there been any improvement on that space, or it continues to stay under pressure?
When you call that art material, what we call an art and stationery portfolio is a wide portfolio, which includes products like stationery adhesive, art material, and handicraft adhesive and colors. We have three or four categories which falls under this. Most of them appear to be doing okay except for one segment, which is handicraft adhesive. That segment is not doing very well, but rest of the segments are doing okay.
Okay. All right, I'll sign back with you. Thank you so much.
Thank you. We take the next question from the line of Rohit Kadam from Credit Suisse. Please go ahead.
Hi, sir. Thanks for taking my question. Sir, on gross margins, we've seen flat gross margins year-over-year in your standalone. Despite input costs moving up, how was this possible? Did we take some price hikes through the quarter or there was some amount of promotional intensity which went down? That's my first question.
Right. If you look at our material cost as a percentage of sales for first six months, it has increased by 150 basis point.
Right.
There has been clearly an impact of increase in material cost which has resulted into 150 basis points increase in material cost. We have done some price increases over last one year at different points of time. It's not across the board price increases, but in some of the products we have increased the price. The impact of increase is clearly visible in our material cost as a percentage of sales.
Okay. Any price increases you have taken in the last quarter, in the September quarter?
We would have taken in few products, but it's not an across the board kind of a price increase.
Nothing in your core adhesive kind of portfolio?
It's in some product, yes, but not in many of the products in the core portfolio.
Okay. My second question is the overall kind of system inventory, which typically for you is 15 days with distributors and another 15 days with wholesaler, retailer. Is it back to the same level or is it going to settle at a lower level? Any particular region, pan India, where hopefully the sales fully not kind of normalized?
Distributor inventories is back to near normal. We work closely with distributors, we have a good sense of their inventory, which I would say is back to near normal. Far as retailers go, the smaller retailer inventory also appears to be okay. The wholesaler inventory is still impacted a bit. They are not stocking as much goods as before, the bulk of the retailers inventory is coming back to near normal levels.
Okay. Just one last question, if I may. Sir, if I look at your consolidated standalone, which is basically your international and the waterproofing facilities, I see a top line decline of high double digits. Is the difference versus what you've reported, is there adverse currency impact here?
Sir, can you repeat the question, please?
When I look at your you've given your constant currency international numbers, which is like having a 2% decline across all your businesses. When I do your reported consolidated minus standalone, the decline Y-o-Y seems to be quite high. Is it because of some adverse cross-currency impact?
Yes, a little bit of cross-currency impact, and along with that, there is a interco-elimination impact of interest subsidiary sales.
Right. Okay, cool. That's it from my side. Thank you.
Right. Thank you. We take the next question from the line of Amnish Aggarwal from Prabhudas Lilladher. Please go ahead.
Hi, sir, I have a couple of questions. My first question is regarding our gross margins, where we have seen a QOQ improvement by nearly 240 basis points. Can you throw some light on this QOQ improvement in margins?
You're talking about EBITDA margin, right?
Gross margins, sir.
Gross margin improvement is largely driven by mix. Any difference between Q1 and Q2 gross margin is only because of mix.
Okay. It means Q2, your product mix was better.
Slightly better, yes.
Okay. Sir, in the same context, this time when you have stated about the volume growth, you are saying volume mix of average is 15% or 12%. Can you throw some light on what is the difference between this volume mix and pure volume growth?
The mix, because we have a very different product. We have products which are very different. Like we have a Fevikwik, which is a very small volume versus Fevicol. In our case, the price per kg differs significantly. Smaller consumer product price per kg will be very different than larger product. If you do pure volume, in our case, it does not mean anything. Our pure volume would not give a right indication. The way we compute this is by keeping prices common across the two periods and then try to see what is the difference in growth, and that technically is volume and mix together and not volume alone.
Okay.
This is how you calculate. What we are using, volume and mix, is the right description of what the growth is.
Okay.
Pure volume is just adding up tonnages for two periods , which for us is not comparable and it could not mean anything.
Okay. Understood.
We derive this figure by keeping the selling price constant across two periods and seeing what the difference in growth rate is.
Okay. Sir, my final question is that, obviously there is an expectation that the organized sector will gain from the unorganized sector. In the one Q we had seen some inventory stocking. Out of the growth which we have received in this quarter, can you give us some idea about what could be the proportion of inventory stocking out of this?
Sir, it's very difficult to say because inventory stocked at various levels, it's very difficult to predict on what it would be. I would request or encourage you not to really look at quarter numbers too much and try to make a sense of it. It's very difficult to estimate, and the figures can change quarter to quarter. It would be very difficult to estimate on how much of this growth is due to inventory coming back to normal level and their normal growth.
Okay. Sir, finally, just one bookkeeping question. What was the ad spend during the current quarter?
Ad spend, as we said during the current quarter, was about 1.7% of sales, which would be about INR 22 crores, INR 23 crores.
What was the same number last year, sir, same quarter?
The figure was much higher. I think last year the same quarter was more like INR 55 crores, INR 57 crores.
INR 55 crores, and this year is 1.7% of sales.
That's right.
Okay, sir. Thanks a lot.
Thank you. A reminder to the participants to ask a question, please press star then one. We take the next question from the line of Lakshmi Narayana from Kotak Mahindra. Please go ahead.
Yeah. Thanks for taking my question. I have two questions. One is on an outreach program of carpenters. What percentage of carpenters do you actually cover in India right now? What was that number three to five years back? Any kind of thing that would be helpful. The second is what has been the contribution of do-it-yourself product like a Fevikwik, et cetera, for us in terms of our standalone revenue and what was that five years back?
Okay. Now, as far as there are two levels of carpenters, you mean. There are people who are known as contractor or mistri as we call them. They are the people who typically take a job from a consumer and execute the job with the help of carpenters.
Contractors are the people who are really the decision maker in terms of the purchase process.
We basically cover most of the contractors who exist. I would not like to give a number for competitive reasons, but we do cover most of the contractors, and we have very good connect with them.
What was the figure five years ago? I don't have that figure handy, but we steadily increase our penetration and reach to cover what we believe are most of the relevant contractors. We still can't cover all of them, but that figure would have increased on a steady basis. This is a very important initiative for us, so we give it a lot of focus, and every year we cover more and more of them. We have a fairly good coverage of contractors.
Is there any zone in India where there is sufficient amount of contractors that our outreach program hasn't really covered? Which states or which regions are those? Then what is your plan for those regions?
There would be geography which is not as well covered. There may be different geography where our presence may not be uniform. It would not be right for me to share those kind of details on a call in terms of which are the area where our penetration is low. Just to tell you. The segment is growing, more contracts come into play every year. More towns come into play, smaller towns start coming into consumption cycle. That is the way we penetrate and grow. Of course, we have some geography gaps or areas of improvement, and we are focused on that. I cannot share specific details or names of those zones.
Got it. What has been the expenditure on that? Because you talked about the advertising thing, for the below the line initiative, what kind of amount you spent?
Below the line, I don't have the exact figure right now, maybe it's a substantial part of our advertising and promotion spend.
Got it. The second question is on the do it yourself product.
The do it yourself product, again, we would not like to give brand-wise sales driver, and give breakup of our business in that manner. We share the figure is what is our consumer and bazaar branded adhesive sales, which is about 50% of our total sales. However, what I would like to say is we have some brands like Fevikwik and M-Seal, which are fairly large brands. They figure among top five or 10 brands of Pidilite, and they have significant sales. Consumer brands are very important to us, and some of them like Fevistik, Fevicol, Fevikwik, and M-Seal are fairly significant contributor to overall turnover of the company.
Any sense of what's been a growth there? I'm not asking for the revenue contribution, but in terms of growth, is it above the company's growth or below the company's growth?
Over a five-year period, I would say that it would be in line with the company's growth, maybe a bit higher than that.
Got it. Thank you so much, sir.
Thanks.
Thank you. We'll take the next question from the line of Avi Mehta from India Infoline. Please go ahead.
Hi, sir. Is there any geographical trend in terms of the demand pickup in any segments, either urban, rural or any regions which have done differently?
More or less, there are some states which are doing a little better, but no clear trend is really emerging, which is very significant in nature. However, we do see that the demand from smaller population center is increasing, and that could be due to wholesale being under stress. A lot of smaller population center which was serviced by wholesale are now buying more quantity directly from the local distributor. We see greater growth coming from smaller population centers.
Sir, in that kind of sense, now that, as you highlighted, wholesale inventory is where it's not yet kind of moved up. You also indicated about, I think, three quarters back or two quarters back, the increasing focus on direct distribution. Have you made any increased efforts over there or could you share any numbers on that front?
Wholesale inventory, as I said, it has not come back to normal level, but wholesale inventory also is better than what it was in June end. Inventory correction has happened even at wholesale level.
It may not be back to the historical levels. As far as our initiative to expand our distribution, we have focused a lot and we have achieved significant growth in semi-wholesalers, the smaller wholesalers. As well as, we have enrolled them into our direct distribution plan and our various promotion plan. We have achieved a good increase in numbers of the smaller wholesalers. In addition to that, we as a company have really focused in smaller population centers. All the towns below 2 lakh get special attention from Pidilite. All businesses of Pidilite work in a combined manner to service those towns. We have steadily covered most of the towns which are below 2 lakhs in most parts of India.
This is your urban program.
Rural. What we call as rural.
Yeah. Okay.
We've made good progress in that. Every year, we make steady progress in that direction to cover more and more geography and to do more and more work in such towns.
Sir, the second question was that, you have always highlighted this focus on doing double-digit kind of volume growth, bringing growth back on that. The key concern over there was on demand environment not being favorable. Also macro, wherever it is. Do you increasingly feel that you're seeing a change in the consumer sentiment or is this little bit more time? What is your view now, sir?
I think there is no difference in our view compared to what we said earlier. We need to see some more quarters to see how things are moving.
In June end, because of GST coming, there was a bit of disturbance and people were not fully ready. That transition has gone well. Most of the channel partners have adopted it well, and the trade has really started happening at a good pace. That's very good progress from June. From the underlying consumer demand, it's still too early to say anything. I think one or two more quarters would give a very good idea.
Okay. As of now, it's still too early to kind of call out the speed of pickup.
It is. We would not like to really call out and make some guess, because the indications are not very clear. In our industry, there are no sort of tracking to really give us a right idea.
Okay. Sir, lastly, on the gross margin front or let's say, on the overall margin front. While there was the initial concern about input costs pressures kind of coming in, we see that the market is turning a little benign in terms of the higher expectations from a 750 to 950, while that was sharper, now it's more or less VAM is also settling in a very kind of broad range. Would you kind of argue given the price increases that we are in a much better, more comfortable situation in terms of input costs? Or is there anything that we should be kind of aware of?
See, input costs means I don't know what you mean by more comfortable, but compared to September end, as I said earlier, raw material prices have still gone up a bit more compared to September end. They have increased by 10% or so since September end. There is a bit of an upward trend in some raw materials. In some raw materials have corrected a bit. Overall, there has been an upward trend. Oil prices are firm. Overall, it is possible that the raw material prices may increase or may remain firm.
Okay. Just recently, what is the quantum of price increases, sir? Is there a number which you could share on an overall portfolio basis in the second quarter? While it is across some products, but on the overall-
We have not received a significant price increase in second quarter.
Okay, sir. Thank you very much, sir.
Sure.
Thank you. We take the next question from the line of Manu Agarwal, an individual investor. Please go ahead.
Hello, sir. As we can see, the tax rate has increased from 28% to 32% since the last year. Moving forward, can we say that the tax rate will remain the same, sir?
Yes. That is correct.
Okay. Thank you.
Sure.
Thank you. Participants to ask a question, please press star then one. Participants to ask a question, please press star then one on your telephone keypad. We take the next question from the line of Anshuman Khatri from Haitong Securities. Please go ahead.
Yeah. Thank you for the opportunity. Congratulations on performance. My question is regarding the mix of consumer versus industrial. Over years, we are seeing the consumer segment is increasing in terms of overall mix. How do you see it in the next couple of years, whether the industrial will continue to go down or will the pickup in industrial activity bring it back to your earlier levels?
We have a very strong position in consumer and Bazaar product. We are making a significant investment to achieve accelerated growth in consumer and Bazaar product. Hence, for this very reason, the contribution of consumer and Bazaar products to overall sales of the company can still continue to increase.
The focus will be more on consumer rather than industrial.
No, it's not rather than. Both are very important businesses to Pidilite. We also have a very good industrial business. We have greater strength in consumer and Bazaar business. We are making greater investments in that area for accelerated growth. Hence it's likely that business may grow faster. We give equal and sufficient attention to industrial business as well. There we are a bit dependent on how the end user industries do. In terms of we supply to companies like paint companies, ink, textile, we export a lot of our products. Our industrial product business to some extent does get impacted more by external factors than our consumer and Bazaar business. Hence, their growth rates may not be as uniform as our consumer and Bazaar product business. Rest, both the businesses will get the right attention.
However, we have much stronger position in consumer and Bazaar, and we are putting greater investment in that. That may see greater growth rate as it has happened in last few years.
Okay. My other question is regarding these coatings where we have gone ahead in the value chain and have few coats, whereas at the same time, we have seen some paint companies coming into the adhesive segments. How do you see this whole both the markets coming together with the companies targeting each other's market? Pidilite is number one by far in the adhesive segment. How do you see your coating segment going, say, in the next three to four years?
We have had some coating products for many years. We used to sell some distemper and some stainers for many years. In stainers, we have good position. That is our part of coating portfolio. We also have some waterproofing coating, like external waterproofing coatings and some of the other related products. We have been involved in some niche or specialized coating products. As of right now, this is our portfolio and this is what we are working with. There is no immediate plan to do anything more than that. As far as paint companies coming into adhesive, they have been making effort. Asian Paints has been making effort. Some other paint companies have either announced or have made some effort. We believe these are very two different markets. It requires different set of competency to succeed in the respective markets.
These are capable companies, so we are keeping a close watch. However, we do not believe that there has been any significant impact since they have launched these products.
Lastly, you had launched a new product for furniture making using machines, different kind of Fevicol variants. How is the pickup and what kind of market do you see for this machine-based furniture production, some automated machinery?
That business is doing well. What you are referring to is what we call as joinery adhesives. Joineries are the units which make furniture using machines. We have been focused on this segment. We have significantly expanded our product range, put together a special team to service this segment. This business has been growing at a good pace. We will continue to put greater attention on this to gain further share in this segment. However, Indian market still has very large share of furniture which is made on-site, and in that particular segment, Fevicol is also very, very strong.
Okay. Thank you, sir, and all the best.
Thank you.
We take the next question from the line of Gunjan Prithyani from JP Morgan. Please go ahead.
Hi, sir. Thanks for taking my questions again. Just two questions. Firstly, on the industrial business, you had mentioned somewhere in the press that it's been some orders which have been shifted or a timing difference. Do we see the revenue growth coming back in third quarter in this segment? And also, the margins seem to have moderated far higher than the consumer segment in this segment. Is it to do with the VAM pressure already being priced in here?
No, on industrial product, I had given two reasons. One was some timing difference on some orders. In addition to that, one more factor was there. Because of very high increase in input cost, we have cut down export of some of the products where margins were challenged. These two factors resulted into an impact on export. If you look at our export business and go back from look at FY 2015-2016, FY 2016-2017, and FY 2017-2018, our margins have significantly improved last year. Our industrial product margin in FY 2016-2017 was significantly higher than the year ago. Even if you look at FY 2014-2015. For last couple of years, when the raw material cycle was very low, the industrial business significantly benefited from it and there was a good margin expansion. However, as material prices have strengthened, it is natural that in this cycle, industrial product margins would come down.
Okay. The second question on some of the products where competition is strong, eventually the epoxy and the tile adhesive, silicone, what are we doing? Is that we are focusing a lot on new launches, or what is your thought process around the gaps that we have versus the competition?
Epoxy adhesive and tile adhesive or silicone sealants are not very big or important products for us. By important, I mean they do not contribute significantly to our turnover. I mean, the contribution is very small at this moment. In that way, these products do not significantly impact our top or bottom line. However, we are also making our efforts and initiative to increase our presence in this market. If you look at epoxy adhesive, Araldite is the largest brand and Resinova is the second largest brand. We make our effort to improve our position in this segment, but as of today, they have low contribution to our sales and profits.
Okay. All right. Thank you so much.
Thank you.
We take the next question from the line of Rahil Jasani from ICICI Securities. Please go ahead.
Yeah, good evening, sir. I just had two questions. One is that, you mentioned that the demand situation has improved in Q2. Was it due to festive season also? Where do you see the impact of festive season, because it was an early festive season this time?
Right. Early Diwali does benefit, but in our case, the products whose sale is linked to Diwali is not very large. For companies like paint companies, early Diwali has a very significant positive impact. For us, the contribution of these type of products which are very closely related to Diwali is small. There could have been some impact, but generally for us, this impact is not very large.
Got it. Okay. Just wanted an update on what you call the pioneer products, new innovations. You mentioned about the joinery products, but anything on other products such as tile adhesive, wood finishes, et cetera?
We have, in terms of wood finishes, you may be aware that we have done a joint venture with ICA. Now that business is our major initiative in that area is under our subsidiary called ICA Pidilite. ICA, as you all know, is one of the world's largest premium wood finishes company. We now have a 50/50 JV with them, and we are in process of setting up a manufacturing plant in Gujarat. With this, we plan to grow our presence in this segment. That's on wood finishes. On tile adhesive also, we have adopted some new strategy which has been under pilot for last few months in one state of India, and we have seen some encouraging results. We plan to put again more efforts to grow our presence in tile adhesive segment.
Got it. That's it from my side.
Sure.
Thank you. For participants to ask a question, please press star then one. We take the next question from the line of Lakshmi Narayana from Kotak Mahindra. Please go ahead.
Thanks again, sir. I have one question regarding your bazaar segment and consumer segment. While the industrial thing you actually would plan your business keeping in mind the industrial growth or even in consumer some part which will actually look into the real estate growth. For most of the business, when you actually plan for your business, what are the one or two top indicators you actually take as a leading indicator for your growth?
We don't plan very short-term growth. I think if you mean what is the indicator and what actual growth we will get in the next quarter or next six months. Pidilite as a company does not work in this manner. We work on slightly medium to long term. We have identified the segments in which we want to participate, and we develop clear strategy and initiatives that we want to pursue. We are focused on ensuring that we execute our initiatives well, and we believe that the growth will follow. We do not really like to plan based on what would happen in next quarter or because of this external factor, this should happen. We are focused on a longer-term growth. Is that your question?
Yeah. It's more of a longer term when you actually plan for your business, like five years, right? There is clearly the demand on housing segment, you know that things should actually pan out. You are getting into more on the housing segment, RCCs, et cetera. For the other part of the business, which is essentially the consumer glue or any other product in terms of carpentry, et cetera. How do you plan for your growth is my question?
There the answer is, you see, lot of the category, what we have understood is that the consumption level in India or consumption or penetration is still very low.
In most of the segments, for us, the real challenge is to expand the market. Pidilite is leader in most of the products and segments in which we operate. However, the consumption level in India still continue to be low compared to many of the adjacent countries. What Pidilite has done successfully over the year is the focus on creating or expanding the market. When we plan for future also, we are aware of the fact that in our product the potential is there. We need to focus and create a new consumption, expand consumption, improve penetration, look at areas of India where the consumption may be lower than the rest, focus there, or focus on changing the habits of people, so consumption goes up.
Got it.
We plan our business from the places where we believe that there is a significant untapped potential, and we work towards tapping that potential.
Okay. Thank you, sir, for that explain.
Sure.
Thank you. Participants to ask a question, please press star, then one. Participants to ask a question, please press star, then one. We take the next question from the line of Nitin Bansal from Ambit Capital. Please go ahead.
Sir, good evening. One question which you answered briefly earlier, that you cut down advertisement expenditure roughly via material number from last year, same period INR 55 crores. This time was materially less number. Why did you have a lower number in this quarter? Do you see that there is going to be a relatively materially higher spend over the next six months or over the next 18 months as you try to gain from unorganized, et cetera?
Nitin, it was not a conscious decision, and we did not cut down the expense. I think I explained earlier that this was purely a timing difference.
Okay.
If you really look at the same quarter last year, our expenditure was much higher than normal, and this quarter it was much lower than normal. That is purely timing opportunity based. Our campaigns are largely linked around seizing the right opportunity, and then we spend significantly.
Okay.
We don't try to balance that expenditure quarter to quarter.
Okay. Can you also explain the value and the mix breakup? Value and mix, how is it driving? Given the scenario where we are in our country right now, in terms of there are certain instances of organized real estate construction, possibly not going through massive growth right now, or if you look at the other building materials like, let's say, a plywood sales or a tile sales, year-over-year is down in this quarter at a primary level at least. Are you noticing that the bulk volume of packages for you are growing relatively slower than the small level, small packages? You also indicated that small town sales are higher. How should one read about what's happening in the bulk packaging and small packaging?
If you look at the question that I asked before, when we look at the large builder segment who build multi-story type of complexes, it is still relatively a smaller part of the new construction in India.
Sure.
Bulk of construction in India is still single story construction, which happens across India.
Okay.
There is a stress in the larger builder segment, and that does have an impact on everybody, including to us, to some extent. There is a vast amount of construction which is of single story, which happens across India, where the stress is not same.
Okay.
That's the posture on that. Yeah.
Yeah. Sir, last question in terms of the GST impact or otherwise. How do you foresee the next 18 months or so in terms of working capital change for the company, in terms of what sort of initiatives you are taking to improve or working capital because of either regulatory changes or self-internal? Margins are fairly one thing, but other thing is how become you more capital efficient from here on also. What kind of scope do you see? What are you doing?
See, working capital is very important to Pidilite, and at any given time, we have lot of initiatives on how to optimize our inventory and our receivables. That's a continuous exercise, and we always find opportunities to address it or reduce it. As far as related to GST, there is some temporary increase in working capital, which is related to GST, which we would expect to normalize. On an ongoing basis, whether GST would nudge into higher working capital, we don't know. We need to see. As far as GST goes also, our hope or expectation is that should not have any material impact on our working capital. As far as for rest of our businesses, there is always room to optimize and improve the efficiency.
Any targets that you could actually explain to us that over the next 18 months or so, I'm not looking at short-term 18 months, 30 months, what kind of efficiency can be extracted from the system?
We have internal targets, I would not like to set or share any target, it would not be very significant compared to the scale of the company. If you look at our working capital, if you have a 5% or 10% reduction, it's not going to make a significant difference. We have internal targets to improve and bring greater efficiency. I don't think that would have any significant impact of that nature.
Okay. Sir, any trends that one can see from the construction chemicals, which can impact growth rates one year and two years down the road because of any initiatives in terms of penetration, in terms of new product launches? Can we see construction chemicals growth over the next one or two years materially different from what we have seen in the last few years?
We are working hard to see materially different growth rate. In terms of initiative, this year you may have seen that we had a campaign with Amitabh Bachchan. We had a campaign which was on Dr. Fixit as a brand, also we had a campaign on Jodi, which is our two leading products, again, with Amitabh Bachchan. Those advertisements really helped us improve awareness of Dr. Fixit across various town classes. As far as our initiative goes, we have focused on increasing brand awareness, increasing product usage or application awareness, and we are working towards achieving materially higher growth rate in construction chemicals.
Thanks, sir.
Thank you. Participant wish to ask a question, please press star, then one. As there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.
Thank you everybody for joining the call on a Friday evening. We appreciate your interest in Pidilite. Have a good weekend. Thank you.
Thank you very much, sir. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.