Ladies and gentlemen, good day and welcome to the Pidilite Industries Limited Q2 FY 2027 earnings conference call hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. I now hand the conference over to Mr. Arun Baid from ICICI Securities. Thank you, and over to you, Mr. Arun.
Good afternoon, ladies and gentlemen. On behalf of ICICI Securities, I welcome you all to the Q2 FY 2027 post-results con call of Pidilite Industries. From the management side, we have Mr. Sudhanshu Vats, MD, Mr. Kavinder Singh, Joint MD, Mr. Sandeep Batra, ED and CFO, Mr. Amit Agarwal, CFO Designate, and Mr. Bhavesh Joshi, Senior Vice President, Domestic Accounts and Taxation. Now I hand over the call to Mr. Batra for his opening remarks. Over to you, sir.
Thank you, Arun, and good afternoon, everybody, and apologies for this slight glitch. I do not know. There was some connectivity challenge. But anyway, we have now joined, and I will quickly give a brief update on the second quarter H1 results, which were approved at our board meeting yesterday. In the current quarter, our standalone revenue was ahead under INR 4,000 crores, with a growth of 21.7% in nominal terms and underpinned by underlying volume growth of 10.7%, which was broad-based consumer and bazaar. Hello?
Hello.
Yeah. Hello? Hello?
Yeah, who is this?
Sorry. I was just saying that the growth in the quarter was quite broad-based with Consumer & Bazaar. UVG was 11.1% and B2B UVG was 9.2%. However, in the quarter, we saw the maximum hit and impact on account of elevated input costs and gross margins standalone declined sequentially as well as year-on-year. As an indicator of the kind of extent of the input cost inflation, we always refer to what has been the VAM consumption rate, which in the second quarter was $1,630, nearly double of what it was in the same period last year, and versus $1,370 in the first quarter. The second quarter saw the full impact of elevated input costs.
However, because of the robust top-line growth, we got operating leverage and against the 720 basis points decline in gross margin, our EBITDA was lower by 430 basis points and came in at the lower end of our range at 20.4%. Subsidiary performance was good for the quarter, with international subsidiaries growing by 21.8%. Good growth in our businesses in Dubai, Bangladesh, Kenya, Thailand. All four of them grew in excess of 20%. EBITDA in the international subsidiaries also improved, with a growth of 53% versus the top-line growth of 21.8%. Domestic subsidiaries too delivered a strong quarter with a revenue growth of 22.2%, again led by the Consumer & Bazaar businesses, which grew by 22%, and B2B businesses grew by also 22%. The only business that saw some revenue headwinds was Nina, which had challenges because they did not have adequate work front available for doing waterproofing.
But I think as we had called out in the first quarter itself, where we saw the benefit of lower input costs and the benefit of pricing that we had taken, that it is better to look at the H1 as a representation of the company performance and therefore in H1, if I were to look at our standalone revenues grew by 22%, UVG was 11%. Again, broad-based Consumer & Bazaar UVG for H1 was 11.6% and B2B UVG was 8.3%. Our H1 EBITDA again came in strong, very much towards the upper end of the range at 23.5%. So that is all I had in terms of an overview of the quarter and the first half. Open the floor for questions.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abneesh Roy from Nuvama. Please go ahead.
Thanks. The first question is on the margin. You have done quite well on the demand side, volume or trend has grown. So, congrats for that. My question is on the margin. So, you have said that in H2 there will be recovery in the margin. So, I wanted to understand the pricing was delayed, because you were expecting the geopolitical issue to get resolved. If you could elaborate what is the current pricing of VAM and the crude related input. That is my first question.
Yeah. Abneesh, always a pleasure to listen to your view and to get you as a first question. I know while Sandeep has spoken about our performance, I just wanted to take a minute to talk about it in the context of the question you have asked, and then maybe address the question again. See, what is happening is that we are in an environment which has got very high raw material inflation. I think, we talk about VAM as representative, but I think there is raw material inflation in many other raw materials of Pidilite. Some of them have reasonable crude linkage as well, by the way. Therefore, that is. You have seen crude is elevated at about $115. So very high raw material inflation, coupled with quite a lot of volatility and uncertainty. These two words are important.
I would sort of use these words most of the time, but I want to give a little bit of definition in our context. First, uncertainty is very simple. I am saying that is what is happening around the world. You see the entire West Asia conflict and therefore movement of goods and so on, so forth. But forget cost of sea cargo, but even movement and therefore that is a challenge and continues to remain a challenge and therefore you have got to manage that well. Volatility is another point I wanted to touch base on. As Sandeep was telling you, see, basically if you look at FY 2026, we had VAM at about $800-$900 through the year, I am saying, a little bit here and there, $800-$900. As soon as West Asia conflict happened, VAM actually shot up by almost $2,000, if I am not mistaken.
Just $2,000, really shot up. Therefore, we had a point of view on where VAM will go based on our earlier understanding of many years. Therefore, $2,000 was not sustainable. We thought it will settle at a number based on which we priced in quarter one. I am giving you illustrative example of Fevicol and VAM, but it is true for our entire portfolio. So, we priced that, we were actually proactive in pricing. We basically priced on what we call a replacement margin, which is what is the replacement cost there and then. We also got the advantage in quarter one, as Sandeep also pointed out, of low-cost inventory coming in from previous quarter four of FY 2026. We delivered a very robust in-quarter EBITDA margin of 26.3%, surprising most people actually, because on the upside, as a pleasant surprise.
But even then, I had said, and I want to again maintain that you should look at it at H1 and as the year progresses, a little bit more through the year. Now, let me tell you what has happened to your question and start begin to address your question. As we entered, and then, therefore, this volatility is important. As we entered quarter two of FY 2027, it sharply cooled down. VAM cooled down as fast as it had gone up. So, it had reached almost about $1,000. Maybe I think some consignments were maybe even $900, to be honest with you. Therefore, it really cooled down. Our point of view as we entered quarter two was that perhaps it is settling down slightly lower than what we had thought it would in the beginning.
We entered quarter two and we rebated, which I think we should because while we carry some inventory and we basically have this consumption margin and replacement margin, most of our local competitors actually have one margin. They just buy and then basically they carry very little inventories at all. Therefore, for them, spot price becomes important. So that was the price the market was seeing. In any case, we have a very clear principle in Pidilite that you will have some amount of premium onto the market, and you will give primacy to demand and growth. Then, of course, it is obvious there is always profitable growth and margins will follow. So I think in that context, we rebated. As we rebated, as the quarter progressed midway into the quarter or maybe towards the second half of the quarter, VAM started going up again quite a lot.
I think, therefore, we basically based on a lot of these, we have now said that we will now take pricing in, and we have taken one round of pricing in October 1. I think the entire volatility, what happens with volatility is that you see this uncertainty and volatility is for us to manage as management. We are very clear as a company and as leaders that we will not transmit this through and through to the market. You cannot say, "My price in one month is like this, second month is like this, third month is like that." We will manage it for the year. We will manage demand as well. So, I think in that context, we have said that if you look at our margins at H1, it is about 23.5%.
As we enter into quarter three with the pricing which we have taken with current, and you asked this question also, I think the current VAM price is around $1,200. With that and so on, so forth, we remain very confident of quarter three and quite confident of the full second half that we should be able to deliver in our EBITDA margin corridor of 20%-24%, ideally in the slightly higher end of the corridor. I think that's where it is. What happens is that you don't pass on this kind of volatility to the market, and therefore in month, in quarter margin becomes a little bit tricky number. While you guys look at it, I'm saying we've always maintained that you should look at EBITDA margin on a slightly longer-term basis, and we stay committed to delivering to that.
I hope it answers your question. It also gives everyone on the call a little bit of the context of what we did, and also, it allows you to understand our confidence because we know the business is motoring very well. You saw the top line is growing well. We know that we've been sort of pricing, and we've priced proactively. We priced earlier also proactively, and again, we have now taken one round of price on our two big brands, Fevicol and Dr. Fixit on October 1. We may follow up with another round of price increase towards the end of this quarter or early next quarter, depending on how things are playing out. I think that's the way it is. I hope I've addressed your question.
Sure. That's very helpful. Two quick follow-ups to my first question. If I see whenever hyperinflation happens, local players reduce competition or even take a pause in terms of presence. For example, detergent, 10 local players have kind of exited the market. If you could elaborate in your different sub-segments, are you seeing some level of deceleration of intensity from local players? Second quick question is, paints, 30%-40% of the raw materials, in fact, 40% of the RM, is linked directly, indirectly to crude. For you also, will it be similar number given VAM is now, say, around 10% of your RM, will crude and related inputs be around 40%?
Let me answer the first question. I'll ask Sandeep to address the second. I think it's true. We have some raw materials, I think percentage, I don't know. On the first part of your question, see what happens is in our case, Abneesh, first of all, our competitors, some of them are not local-local, like the way you see in FMCG and the example you gave of laundry. So, they're not really regional local. There are some, but they're not that many. The point is that in our case, the competition is as active as it has been. In case of Fevicol, a little bit maybe, but even there, because I'm saying there you do have some, let's say, very local competitors. If you were to look at Dr. Fixit, our competitors are not local competitors.
They are like Euro stuff in some areas, paint companies, some areas. There are all kinds in that play space. If you look at tile adhesives, our competitors are large companies in their own right. Therefore, if you look at us, our competition is a little different. We've had reasonable competitive intensity. I wouldn't say that there is any fundamental shift in competitive intensity. I think that is very clear. Sandeep, you want to talk about the second?
Yeah, sure.
Abneesh, from a chemistry point of view, yes, I think bulk of our raw materials would be linked to crude, be it raw materials or packaging materials. But the linkage is not instantaneous or not immediate. They would have other pressures or factors that impact pricing. One, of course, is the input cost, but more importantly, and something that we witnessed is their own demand and supply dynamics. For example, VAM as a raw material, if demand in China is soft or if demand in Europe is soft, then the full impact of input cost increases may not translate in VAM prices. There are many factors at play. But from a chemistry point of view, yes, they are all downstream petrochemical products. So at some time or the other, they will mirror whatever is happening at crude level pricing.
Sure. My second and last question. Araldite Wud X and Araldite White X, are these really new products? Do you have similar products in your legacy brands? If no, what specific market it will address and who is servicing them, if at all? Are these purely new innovation, pure brand extension? Maybe they are addressed by current products, but now it will be more dedicated products. How is the pricing?
No, there are multiple questions here, but let me try and explain to you in one, maybe a little bit short. Araldite Wud X and Araldite Klad X and Wud X is what you have seen in the investor deck. Actually, just to give you a conceptual thought. First of all, they are new. To answer your question, they are new. This is not something which existed in our portfolio. The other thing that I am also telling, Abneesh, is that progressively, at least this year, we have a lot of innovation, which is fundamental innovation. Let me take this time to give you an example of on Fevicol, we have validated products called Mulgilock and Expert. They are going national in November. In some ways, they have the potential to be the core of the future in that sense. That's the way it is.
In Dr. Fixit, we have a product called Wonderproof, which is actually doing really well as we are doing this thing. Therefore, that's again a good thing. If you look at M-Seal as a brand, we are just validating a product called M-Seal Advanced, which brings multiple features. One amongst them is to be able to wash your hands very easily, and so on and so forth. All these products are relatively new. If you look at M-Seal Advanced, M-Seal Advanced allows the plumber to be able to wash the solvent so easily, which is a fundamental innovation. It's universal. That's another important thing. It's low on VOC and solvent. That's a progressive thing as you go forward. Wonderproof, if you look at it has a very high drying time.
Waterproofing all the time you have, whether it's pre-coat, post-coat, you have the flexibility of doing both. It also allows if there is some stagnant water or water, because if your leveling is not correct, I think it allows you to be able to do waterproof, basically do the waterproofing, even in some level of moisture and water content available there. Some of these fundamental shifts, and similarly, Araldite White X and Wud X are for the premium segment. This one particularly for premium segment, for premium wood and premium stone. A lot of innovation in different areas, maybe it's relevant to others on the call as well and answers maybe future questions. A lot of innovation happening across the company, which are very fundamental, which are very new. Even consumer, there are things which are happening.
Our new clean off, which has just been done, is getting a very good response on quick commerce and so on and so forth.
Thank you. That's all from my side. Thank you.
Thank you very much. Participants are requested to limit their questions to one per participant. The next question is from the line of Anand Naresh Shah from Axis Capital. Please go ahead.
Yeah. Hi, team. Just one, two question. Specifically on the domestic subsidiaries business, we have seen a very strong growth, and it's sort of accelerated. Margins have relatively held up well there. I just wanted to understand, maybe slightly more granular, what is happening in the domestic subsidiaries. Which parts are delivering this stronger growth?
Anand, I think, that growth, I would say, is again, fairly broad-based. If you look at the split of our domestic subsidiaries, there is the biggest in the consumer and bazaar is ICA, which is into wood finish. That had a good quarter in terms of volume and top line. Then we have a bunch of subsidiaries that manufacture products which are in the construction chemical space, starting with epoxy grout, marble and stone finish, and some other waterproofing products. One of which Sudhanshu referred to as Wonderproof. That's a new product. Most of the new products that have come through this joint venture route have gained very good market traction. That's one of the reasons why our top line in the domestic subsidiaries as well as margins have improved.
As I mentioned in my opening remarks, the only business which has seen some headwinds because it happens in the monsoon period, has been Nina. Others have all grown north of 20%.
Okay. Got it. Fairly clear. Just one last small one on the price hike that you announced in October. Can you quantify as to how much hike you have taken?
Yeah. On the pricing, to just give you a sense, of course, it varies from product to product, from our different brands and categories. But I think wherever there was very high inflation, we had taken about 12%-15% price increase in our first round, which was most of it was during quarter one, in two phases in a staggered form. What we have done in October and through October, there could be some October 1, some here as we go along in October. We are now again going to take 3%-5% price increase in some of these areas where there is very heightened inflation.
Got it. Just when you opened the statement, you did say that with this hike and let us say $1,200-$1,300± VAM, you are confident of maintaining the margin band more towards the higher end of the corridor in H2. That would be the right assumption?
Yes, that is correct.
That is absolutely the right assumption.
Okay. Perfect. Thanks a lot.
Thank you very much. The next question is from the line of Sonali Salgaonkar from Jefferies. Please go ahead.
Thank you for the update, [uncertain]. Firstly, on the volumes and the demand. I think of the eight out of the last 10 quarters, we are delivering double-digit UVG, especially in a market which is very miserable plus uncertainty because of some global conflict. I would like to understand, of course, we are getting a price much better than our peers. Exactly which end user sectors are doing well for us, and how should we look at volume growth going forward, especially with that 20%, 15% price hike?
Yeah. I think there are, again, many questions. I think first part is that we've sustained double-digit underlying volume growth for about six to eight quarters. Sonali, you are absolutely right. Thank you for the question. Second is how are you managing to do this? And it seems to be ahead of the peers. And third is, of course, with these set of price hikes, how confident are you that it will continue? Let me address all three. I think the first part is that, as a company, we have this philosophy of core and growth, and within growth, there are multiple segments that are growing very well.
In our earlier calls and time permitting, even in this call, we can talk a little bit more about our construction chemical feed, where we are doing a lot of work where basically the growth tends to remain very robust. If you look at our brands there, Roff is doing exceedingly well. Dr. Fixit continues to do well. Pidilite Projects Group, which we have formed, and Kavinder has talked about it in detail earlier as well, continues to drive really strong growth. Therefore, that is one area where we continue to see growth, both on C&B and PPG is, of course, B2B, but both places they form strong growth. I think we have, in the period which has gone by, I think we've seen robust growth in our core area as well.
Fevicol has delivered better growth than it has done in the past by about 50 basis points to 100 basis points, and that makes a difference. That's a large brand. I think as we continue, our portfolio is getting richer, and we are getting newer brands, newer products, newer portfolio. We talked about a few innovations. Some of them are performing very well. Sandeep again spoke about it. Some of them go through our subsidiaries. I think this entire piece gives us the confidence that we will continue to do well. If you look at our primary things which we do, basically brand building, we are seeing all three big brands have had a renewed campaign. There was in quarter one, middle of quarter two, Roff's new campaign came in, and towards the end of quarter two, Dr. Fixit new copy has also gone in.
You will see Roff and Dr. Fixit a lot more in quarter three as well. A lot more work on brands. There is continuous work which keeps happening on field marketing, which is very important. A lot of infusion of technology there as well, customizing some of our messages, using analytics, basically using AI to customize a lot of those messages. A lot of that work is happening, which is largely done by us. That allows us to continue to deliver on this. With the growth of the country, and we have a GDP indexation, we continue to remain buoyant. If the country's growth is in the 6.5%, 7.0% Zip code, real growth, our UVG growth should remain double digits.
I think, and we would like to keep inching it up, to put it, because a lot of these things we do, we create a lot of demand ourselves. I think that's the fundamental thing. I think on the pricing which we have done, up until now, we are seeing demand to be quite robust. The latest round of pricing which we are doing, El Niño, which is also going to have some effect, and elevated crude, if it remains, and the last unknown is if West Asia conflict flares up even further. Impact of those items are not fully baked in. It is hard to bake them in fully. But as of now, we can assure you that we are seeing reasonably robust demand. You've seen our first quarter number. We've entered third quarter quite well. That's what I can tell you.
That's great to hear, sir. Sir, my second question is, you already have taken about 12% price hikes year-to-date, mainly in the Q1, and we have seen VAM come down a bit. If I may request for some approximate quantification of the total cost, how much has been already passed on or is everything fully passed on?
Sonali, I think in absolute terms, the entire cost increase has got passed on. But in percentage terms, obviously, given the level that our gross margins are at, if you have to be at 50% gross margin, you have to price in 2x of the cost increase to be at the same percentage level of margin. That is not something that can be done overnight, right? Our first objective was to pass on the absolute value of the cost increase, which we have done and more. Depending upon the underlying demand situation and the on-ground situation, we are looking at calibrated pricing wherever the opportunity provides.
Perfect. Great to hear that, sir. All the best to the team, and happy festive season.
Thank you. Thank you, Sonali.
Thank you very much. The next question is from the line of Jay Doshi from Kotak Securities. Please go ahead.
Hi, team. Thanks for the opportunity and congratulations on good UVG momentum. My question is, with adoption of AI, do you see any potential for improvement in employee productivity for your sales force and other workforce that you have on the ground workforce? Likewise on media, A&P spend. Do you think that in the next couple of years, you may be able to extract meaningful operating leverage on these line items or other cost line items?
Jay, that's a very good question, and I think something which we keep talking in managements and board as well. I think, let me talk to you a little bit about the AI journey of Pidilite and sort of give you a little bit of glimpse on how we are looking at this piece. First of all, we are also adopting AI for our company, and we are very serious about it. Let me tell you, for instance, our top 30 leaders did a one-day hands-on workshop on AI, full-day hands-on workshop on basically where they themselves were coding and doing something and playing around with this. Thereafter, as a company, we are running AI hackathons. We've done first. The second one is around the corner now for across the board in the company.
Therefore, and you could be a very senior person, you could be a very junior person, you could be a 60-year-old or old foggies like some of us, or you could be as young as a 25, 22. I think therefore, you're basically across the board, you're doing that. We have also identified quite a few use cases where we could deploy AI to begin with. In certain functions, we are also seeing, can you use a little bit of agentic pieces, particularly, let's say, in HR, in assessment a little bit, moving forward a little bit in finance and so on and so forth. That's the work which we are doing as we speak. In the front end, what we are doing is how do we become more effective and how do we get better at what we are doing is the first protocol.
Efficiency that we derive from it, productivity and reduction in manpower will be a subsequent discussion. I think in first phase, again, I just gave the example of [uncertain] where we basically can cut down multiple customize our offerings. We can do all language renditions. We have a lot of content on [uncertain], by the way, across our brands. Now we can do short forms. There's a lot of that work happening. Influencers in the relative areas, influencer work happening. There are influencers for different areas which are different, you know, that kind of stuff. How do you manage that? How do you get your micro, medium, and mega influencers in each category? How do you define them? How do you work with them? How do you create copy or adapt copy quickly with AI is the work which we are doing.
A little bit of AI-led analytics for front end to improve your range selling, to what to sell in, and so on, so forth. That work is happening. On productivity, we will pick it up as a phase two, particularly as you talked about on front end and also maybe as we go forward in manufacturing. I would also like to bring in Kavinder here. I requested to talk a little bit of what we are doing also in manufacturing and supply chain. Therefore, you will get a sense on AI. Kavinder, to you quickly.
Actually, on AI, we are looking at using the power of AI to look at how we can improve the material variances, particularly in manufacturing. Of course, along with AI, there are some automation initiatives are on, since your question was a broader question on the employee costs. The idea is not so much employee costs, but to actually deliver consistent quality, which is something that is very important. There are AI use cases in supply chain which are under works to see how we can improve our service delivery in terms of reduced response times. There are areas around network optimization. We are looking around those areas in supply chain. There are various initiatives going on. But to sort of answer your specific query on staff costs, for us, staff cost is not an objective by itself.
As an outcome of whatever we do, whatever happens, we will see, but we believe that the workflows get streamlined, people have richer jobs. When the next phase of growth, which is already on, is going on, obviously, the operating leverage with regards to staff costs, as we have already seen, is in play. You will probably see more of it because all these initiatives that we are taking will help us to grow with limited additions to the manpower or the people. That is the way we are looking at it because we are in growth phase. In the growth phase, in our journey, we believe the idea is not to reduce numbers, but actually see how we can make people more effective and productive. So that is the focus for us. Thank you.
Thank you so much for the detailed answer, and wish you the very best.
Thank you.
Thank you very much. The next question is from the line of Pratik Gothi from HSBC. Please go ahead.
Hello. Yeah. Hi. Am I audible?
Yes. You are.
Yeah. Great. Thank you for the opportunity. My first question is on the demand environment. Any color in terms of demand environment across regions, urban, rural divide? Any comments there, please?
I think it is very broad-based. On the urban-rural divide, if I was to talk to you about, I think, we have always had very robust rural growth, and our rural growths have always led urban growth. in the last couple of quarters, and specifically in this quarter, we are seeing a resurgence or an uplift, further uplift in the urban growth. As I speak to you, the urban and rural are quite similar. Arguably, quarter two, for the very first time after a long time, urban is slightly ahead of rural. I think, therefore, urban growth are sort of picking up. Rural growths are holding on. The way I want to frame it is that urban growths have seen an uptick. Rural growths have been where they are up until now for us.
Great. Understood. Any more color on the construction chemicals bit? Waterproofing tile adhesives did well. Any more color in terms of retail space versus project business?
Yeah. I think, as you may be tracking, the construction activity in India continues to do well, and that is something that I think Sudhanshu alluded in his earlier comments also. If you look at Dr. Fixit portfolio, Roff tile adhesives, and of course, we have grouts as well as some Tenax, which is another novel and stone care brand. We are seeing robust growth in these businesses. We are also beginning to see momentum in the floor coating business. When we look at our portfolio on the construction chemicals, which spans across these power brands, we are seeing momentum both in urban and the emerging India markets, which include the rural as well as small towns. In fact, as we speak, we believe that the, this was more on the retail side. Your question is both on retail and project. On the retail side, momentum is good.
The category, I think, of tile adhesive continues to grow, and we are also growing higher than the category. That is one thing that we are determined to do to gain market share. As far as the projects business is concerned, the pipeline is healthy. Conversions are happening well. We have transited from small and medium projects to large projects kind of classification to segment-based approach. We now are targeting the medium and large builders on residential, commercial, and then we have separated hotels, hospitals, and education institutions as another category. There is a separate category of EPC contractors. We go segment-wise, and we are noticing that that is also beginning to yield results because our teams have got reorganized. That is something that we did in q uarter two. Some of the benefits we saw in quarter two, and they will play out in quarter three as well.
Our ways of working, our focus on working with key accounts, and our focus on offering them Pidilite range of solutions which go beyond even construction chemicals, is already underway. Projects is seeing momentum, and we believe this momentum will continue. At an overall level, if I were to once again summarize whether it is Dr. Fixit, whether it is Roff, whether it is Cipy, both in retail and in projects, we continue to see the momentum, and we believe this momentum is here to continue as we move forward into the immediate future.
Great. Thank you for the elaborate answer.
Thank you very much. The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance Company Limited. Please go ahead.
Thank you. Congratulations on good volume growth. Sir, the question is on your portfolio. You have always talked about pioneers moving to growth. You can just talk about which categories in the pioneer can become large or have large TAM, say, Roff or Fevicol or relatively larger TAM. Or you think that the foreseeable future's growth would be more by premiumization within core and growth category? I mean, that is what it looks based on what you have presented in all these three categories. So if you can just talk about large categories within pioneer, which can grow fast and can quickly move to growth.
Yeah. We have quite a few of them. Let me give you a few examples. See, what happens is that when you do pioneering work, what happens is when you are doing pioneering work around 20 categories or 10 categories, which is the case, I can sort of enumerate a few as well. Few of them will just sort of take-off . Now, the question is, of these 20 pioneering, is the first one going to take off or second one, or is it? We do right work for each of them, and we continue to work with them so that they can take off. Now, let me give you a few examples, and I think we talked about it a few earlier as well.
I think one example on pioneering and with a relatively large TAM is our work with Grupo Puma, the joint venture, and Kavinder may have spoken up earlier also on this. But just let me keep it crisp and give you an idea. So basically, this is our external renders where we are doing a lot of work. We have already done six to seven pilots in North India with good success, and we will see more of this as we go forward. We are working on some large projects also in this area. So, this, in Europe, in Southern Europe, where this has been around for some time, this can be 15%-20% of all exterior walls done in a conventional sense, not the glass and steel towers which come up now.
The conventional ones, this can be 15%-20%. This is a very large TAM if you get to that number here. When will it play out? How much it will play out? We are at it, so this is another very good one. Similarly, in B2B, we have talked about quite a few, and we continue to do a lot of work, by the way. Therefore, there is a lot of work happening. It is a bit like the duck. There is a lot of paddling happening under the water. You do not see it. It seems calm. Once you know, we will move faster. Here again, if you look at it on some of our newer applications, as India is gearing up for more manufacturing, there are segments we are looking at opportunities, and we are looking at segments which can grow very rapidly. We have talked about electronics.
We have broken that out into sub-segments. In the interest of time, I am not going to get there, but we are looking at partnerships in those sub-segments. Auto is another big one where we can look at within, and there is a little bit of overlap in EV auto and in electronics, the way we call it. India is now getting big time into footwear. A lot of footwear companies are going to step in into India. A lot of projects have been approved. You will see a lot of footwear manufacturing in India. Our footwear adhesives portfolio and the partnership that we do, that itself is another promising one. I think these are just a few illustrations. We have also done, by the way, like we had done ICA Pidilite, which is another one which was a pioneer, which is now a clear growth category.
Like we had done for wood finishes, there is some work happening on wall finishes. I have just given you a few illustrative examples across consumer bazaar and B2B, but there are many of these. I think, therefore, there are quite a few, and some of them will grow quite big. Having said that, our core growth in our core segment will also be through premiumization and new feature-led products. That work is also happening, and we talked about that, so I do not want to repeat it. Premiumization in Fevicol, feature-led products or better products which solve bigger problems, both in Dr. Fixit, M-Seal. These are our between core and growth, but existing big brands. I think there, again, there is some premiumization, some work in consumer space as well. There is a lot of work happening as far as Pidilite is concerned in this space.
Understood. Just last question, follow-up to this is the C&B seeing double-digit UVG growth. I think in the last cycle, when RM prices were much lower, you have invested a lot, reinvested to A&P as well as to other measures, the gain there you had in gross margin. Based on that, plus with changing mix of growth categories or improving mix of growth categories, can we go from, say, this 10.5% or 11% UVG to higher numbers? Should we expect that? Or this is a sustainable number from the short to medium-term perspective. Thank you, and all the best.
Thank you. Look, from a short-term perspective, I think this is a number we would like to deliver, which is double digit. I think we have spoken about this also, and this year is, of course, not the right time to talk about it with so much inflation. But our desire is to keep lifting up underlying volume growth. If you were to look at our track record of the last three to four years, at least in 60 basis points, 70 basis points, 100 basis points. So we have slowly inched this up over a period of last three to four years, including this year, I think the going up to now is quite good.
Therefore, we will continue to. We want to take this from classic double digit to early teens. I think that is the desire over a period of time. In the medium term, yes, UVG has to continue to grow.
If you see even first half, Keyur, last year was 10.1%, and this year first half is 11%. So, we are committed.
Yeah.
Obviously, it is not going to dramatically jump in one year because it is underlying volume growth. It is not total volume growth. As we have always said that we are not chasing volume for volume's sake. For us, the mantra is profitable underlying volume growth. We are not here to chase volume for delivering any volume number. The growth has to be profitable volume growth.
Understood. Thank you.
Thank you very much. The next question is from the line of Tejas Shah from Avendus Spark Institutional Equities. Please go ahead.
Hi. Thanks for the opportunity. Hello.
Yes, Tejas, we can hear you. Please go ahead.
Yeah.
Yes, you are. Speak, carry on.
Yeah. Sir, we entered this year on the backdrop of the war and also the noise of job losses. As the year progressed, those headwinds have actually gathered pace only. With this context, when I see the numbers that we have delivered, would you say that we had to work harder for what we have done, or there is also you are positively surprised with the demand on ground because you spend a lot of time as a team also in marketplace. Just wanted to understand from you, are you positively surprised and how do you see this demand sustaining, let's say, ceteris paribus, macro doesn't improve or change from here for the rest of the year?
Yeah. Therefore, we are not building any improvement in macro for the rest of the year. At the same time, this is not the scenario for a really worsened macro. I think that's the point I'm making. This is now the new macro, which is basically conflicts are on in some parts, crude is elevated to a certain level, and some supply chain disruptions keep happening all the time. I think that you're absolutely right. The teams are indeed working hard, basically, Tejas, particularly supply chain, to make sure that material is available, to make sure that material is produced and then shipped. I think all that is happening. To be honest with you, our exports out of India into West Asia or going shipped through West Asia, that area, are still underperforming because there are challenges in that space.
Having said that, as far as our work in India is concerned, on-ground work is concerned, we do a lot of work to generate demand ourselves. We are continuously working on field marketing, brand building. We are making the right investments. We talked about a lot of those things, innovation. We will continue to do that, and we stay firmly focused on delivering double-digit underlying volume growth even under these trying circumstances. Lastly, to your point, demand in India has held up, and that's good. That's a good thing for us. I'm saying, therefore, in India, demand is holding up. As we travel, we see that also up until now.
Super. Sir, just on margins, we are known not to let a crisis go to waste. Historically, we have seen that we actually kind of buckle up on efficiency, on internal product re-engineering, everything during crisis. That actually kind of helps us when the normalcy comes back, we actually go and settle down at a higher level of margins. Now, assuming that we are actually at it in this crisis period also, should we assume that if normalcy has to come back, let's say hypothetically crude has to fall or the raw material has to fall 30% from here on tomorrow. Would you say that all these inefficiencies and pricing power that you have displayed in the past will mean that we again reset the base for next three, five years on margins?
So, margin base, we have talked about a lot. I think margin base, we would like to keep at 20%- 24%, because I am saying you cannot fundamentally reset it. But I think what we will do is we will continue to stay on the higher end, continue to inch it up a little bit. In between, I think, with all the work which we have done on the previous cycle, when it cooled down, you saw that. It cooled down for a slightly extended period. If you look at 2024, 2025, 2026. Almost two years, very benign costs and all that. You saw us inching up and also a few quarters delivering ahead of our corridor as well.
But our understanding is that this is the right profile because trying to go very high on margin at times could compromise the growth opportunity in a country like India. Could also open up the segments for competitors and make it attractive for wrong reasons. So basically, while philosophically what you are saying, Tejas, is correct and we will continue because that is our DNA in that zone. But I think the corridor is more or less where we are. I think that is the piece.
Very clear. Thanks, and best wishes, festive wishes to the team. Thanks.
Thank you.
Thank you very much. The next question is from the line of Siddhi Soni from Hansa Capital. Please go ahead.
Hi. I hope I am audible.
Yes, great.
Yeah. I understand VAM being a headwind for the company in terms of the demand and supply in international market and crude oil prices due to Middle East crisis. But one of our competitor has set up the VAM plant itself. I just wanted to understand whether we are having any such plans or whether we are looking to buy from somewhere else to reduce our cost or what have we thought about this? One, and second will be, I want you to put some light on UnoFin product. The plaster that would kind of replace the long paint layer. I want to understand what was the response in Delhi, Jaipur, and Chandigarh. Thank you.
Okay. I think we'll take both the questions. I'll answer the first one, and I'll hand over to Kavinder to talk to you a little bit more about UnoFin. I think on the first part, on the capacity which has come up for one of our competitors, and part of it has come up, not full VAM as of now. I think VAM production has not started. PVA has started. I think, see, we've evaluated VAM ourselves or with one of our large international partners multiple times. Our understanding is that the minimum size for VAM which you need in India, first of all, that you should have the right scale, because this is a scale product. Therefore, it is made in fewer large plants all across the world. Therefore, having a suboptimal size may not help you from pricing in the long term.
May secure part of it. From supply chain security, maybe yes, but we've not had a challenge on security up until now, even in times like this. From a pricing point of view, we see no advantage. Even in our analysis, the other thing we've also seen is that India does not have natural advantage on either ethylene or acetic acid. Therefore, if you're going to source ethylene and acetic acid, and then convert that into VAM, I think, you may or may not have that cost advantage which you're going for. Our own understanding is you may not have. Unless you build a hyper-scale project. The project which has just come up by the competitor is, in our judgment, definitely nowhere close to that. It could be for other reasons. We are nobody to comment on that.
I think for their other pieces, and they may have a good reason for it. But from a point of view of cost advantage, I think it doesn't work for us. Also, as a branded player, and Pidilite has very strong brands. I think in general, if you look at, now I'm saying conceptually, not necessarily specifically to this point, both models on backward integration or managing through buying and managing the crest and troughs well work quite well. Many branded players across the world in most categories are not fully backward integrated. They run their businesses very well by procuring well and managing the cycles as they go up and down quite well. I think that's the philosophy. I think we are in that zone and that space at the moment.
We see no specific advantage, and to that extent, no specific disadvantage to us when this plant comes up. I will hand over to Kavinder on the second part of your question on UnoFin.
Yeah. As you are aware, we have been working with the Spanish joint venture partners, Grupo Puma, on building a business around these exterior renders. Obviously, there are advantages of getting into this category. It is a new category. There is a very specific technology. It gives you 15, 20 years of waterproofing, extremely good-looking facades, aesthetically, on the outside. So, we have gone to various segments, hotels as well as villas and even residential buildings. So, we have obviously learned along the way, and there are obviously advantages of building this business, because this is sprayable, breathable render and ensures that you are able to get very good-looking facades or exteriors for a long time, and with the waterproofing intact. Now, where are we and how do we want to go further? At this moment of time, quite a lot of our learnings have been assimilated.
We have seen interest from various architects to use this product in some of their projects. So, we have decided, and we will continue to focus on the projects business within that segment, which are more amenable for this kind of a product are basically commercial and hotels and those kind of buildings. A little bit of residential is also fine, low-rise residential buildings. This is something that we are now rolling out as we speak. As the momentum is building up, we are already trying to see whether we need to put up more plants of this particular render production if it can be done beyond the current facility that we have in Rajasthan. So, the news is positive. We are building this category. Even with Grupo Puma, we had, just as an adjunct to your question, this is not just for the vendors.
We have tied up with them for even tile adhesive. So, we have launched a product called NioPro, which is gaining good momentum in the premium tile adhesive, specialized tile adhesive range. So, we are seeing that by working with partners, and this has been our strategy, wherever there is a technology that we can bring in, it helps us to be an early mover in the category. That becomes our, in some manner, a moat as we go forward. As of now, the story is positive. It is building up slowly but surely. Hello? Yeah.
Thank you very much. I now hand the conference over to the management for closing comments.
Oh, thank you. Thank you very much for your interest in Pidilite and for joining the call and wish each of you and your families the best for the festive season. Very happy Diwali to everybody.
Yeah. Wish you all a very happy Diwali.
Thank you.
Thank you.
On behalf of Pidilite Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.