ASIANPAINT — earnings call
The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.
Prepared remarks
Moderator · Conference Operator
Thank you, sir.
We will now move into our question and answer session.
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13 | P a g e Our first question is coming from the tele calling.
We have Mr. Abneesh Roy (Edelweiss) who has joined us through tele calling.
Abneesh Roy
Amit, Congrats on very good sales and volume growth performance.
I have two questions.
The first is on patents.
As on FY 21, you’ve filed 20 new patents and overall 76.
So, paint is normally regarded not as a very high technology input kind of a category.
So, wanted to understand these patents in what areas these are, what kind of competitive advantage these can give over longer term and how much you see the scope of the commercialization of these patents.
Amit Syngle
Thanks Abneesh, in terms of asking this question and how we see is that, you know, the whole area of patenting is a very, very strong indication of the technology pulse of the company and in terms of what platforms and what kind of technologies which we are kind of evoking and going ahead.
So, if you look at the whole area of decorative and industrial - Yes, patents are more in vogue as far as the industrial paints are concerned and today, you would see across organization, there are a lot of industrial patents, which happen and in it is far easier to kind of really look at protecting that technology going forward, because it is meant for only specific customers to that extent and therefore, I think the patenting is quite well invoked there to that extent.
So, out of the 70, which we have applied there are some which have gone into the industrial paint zone, but I think one thing which we wanted to alter the paradigm in the paint industry is we wanted to look at patents in the decorative paints as well and therefore, we have looked at a lot of products, which we are coming where the patenting is around, either a unique technology which we have taken or a unique process we have adopted in terms of making it to that extent or a clubbing of 2-3 technologies, which have come in.
How we see it is kind of going forward is that it kind of gives us an edge in the market, because certain properties in paints, which we will get are a result of that patenting, which we have done so far.
To give you an example, you know, we have recently developed a glass coating, which can be applied on glass easily, and it will not kind of vitiate the look of the glass, but it will give protection from dirt and any kind of, you know, impurity which comes on to that extent.
Now it is a unique patent, which we have applied for it so that today, a lot of people cannot copy it to that extent.
And secondly, I think we really get a heads up in terms of really taking the product to the market and really kind of doing it.
So I think our objective is that we do patenting from the point of view of looking at how much commercialization we can do and not look at from a theoretical perspective of saying and announcing in the market that I have so many patents to that extent.
So I think that's an internal target in terms of looking at percentage commercialization of the total patents to that extent, and that is something which we are going forward.
But in Crux the whole area of patenting, both in decorative and industrial gives you an edge, it kind of gives you something what we call as the inimitability index, which is you are differentiated from the market in a very strong way.
And you know, it will take some time for any competition to catch on it or they can't even offer that kind of properties, which are emanating from a patented product.
Abneesh Roy
So thanks, that was quite helpful.
My last question is on again R&D.
So you have highlighted in your earlier calls that the R&D team is working on alternate raw materials, alternate formulations to drive cost savings. when I see the 630 bps margin contraction this quarter.
So how do you measure the productivity of the R&D team?
Not from a quarter perspective, because in paint, normally you have to see two quarter, three quarter to get full trend.
So on that two quarter time frame, how to measure the productivity whether you're getting more savings vs industry?
So 630 bps also because you are driving market share?
So there could be more competition than industry?
How do you measure the productivity?
And how do we as outside people, how do we see whether it's working or not?
14 | P a g e
Amit Syngle
So overall, we have a lot of internal parameters in terms of what we look at, we have parameters like a sourcing efficiency in terms of what we speak of.
So from what we were sourcing earlier to now in terms of what's the improvement in terms of that sourcing, there is a formulation efficiency, which means that earlier there was a certain cost of the formulation in terms of what have been able to work around so that we have been able to conserve that cost in terms of looking at the formulation efficiency.
We also have certain other indicators like internally we have an H1 H2 H3 indicator to kind of look at in terms of which horizons we are kind of really looking at the products coming in in terms of what we are introducing.
So some of those horizons which will give us a larger margin.
And a larger thing going will kind of in you know indicate a larger productivity for the R&D.
So finally at the end of it, there is a value matrix which we kind of really look at measuring the R&D efficiency from the point of view of total money spent on R&D and the total contribution which R&D would make with respect to either conserving costs or generating revenues in terms of the new products they're generating.
Abneesh Roy
That was very helpful.
That's all from my time.
Amit Syngle
Thanks Abneesh.
Moderator · Conference Operator
Thank you.
Our next caller is Mr. Avi Mehta (Macquarie) and he has joined us on zoom
Avi Mehta
So thanks a lot for the presentation, it is extremely detailed.
First, I wanted to understand, you know, you have shown a very confident and very bullish outlook, in terms of the going forward in the near term.
I wanted to just contrast it to what we are seeing globally, as the recoveries panning out there is a movement away from home improvement.
Do you see that as a concern for India?
And if not why?
That would be the first question is well, if you could help,
Amit Syngle
Okay.
So, when you look at I think the Indian market is very, very different in terms of how it kind of really behaves, I think it is a market, which really believes in, you know, huge consumption, which is there, given our population, which is there to that extent, and therefore, I think it, you know, as we see that consumption is the one which really differentiates our overall growth and deliveries in terms of what really happens in the economy in the market to that extent.
So as I see it, today, you know, across businesses, so whether it is our business, or whether it is FMCG, or whether it is consumer durables, or it is in terms of IT or anything, I think what we see is definitely, that as the markets really open, the pent up demand doesn't really go anywhere, the pent up demand, still kind of it literally remains to that extent, and therefore, especially if I talk of the paint industry, we have seen very clearly last year that given the fact that quarter one was down, the pent up demand really continued till Q3 and early parts of Q4 to that extent, and therefore, what really happens is only a deferment, and the demand really kind of doesn't go off to that extent.
And therefore, in some instances, what I see is that the demand literally kind of comes with the rebellion, it literally kind of comes with a very strong force to that extent.
And therefore, if today I think customers get an inkling that today we are getting a clear quarter and they are going to be no, you know, further waves which are going to affect the market, I think the demand conditions will be very, very strong, as we kind of look at and most of the industries today are looking at preparing for this kind of a surge, which is going to happen to that extent going forward.
Avi Mehta
So if I understand it correctly, your argument is that from a it's a deferment, I kind of appreciate that.
But you know, we had that same last year.
So you're saying basically, whatever impact 15 | P a g e we saw in growth trajectory last year, would come back with the renewed focus in this year or when the year normalizes?
Is that a fair understanding?
Amit Syngle
Yeah, that's a fair understanding, because what we feel is that you know, and I could kind of amplify that point, because if someone is going to do a painting of his home, which is maintainence-led, okay or it is a new home led kind of a thing, you know, the person will kind of defer it and will do it somewhere in that quarter, which kind of follows to that extent, it will always be there.
If it is a project which is going on a project will come to a standstill, but the requirement which is still kind of come in the subsequent period to that extent, therefore, what I feel is that the deferment kind of really kind of happens very, very strongly and it is something which is a feature which possible will happen this year also.
Avi Mehta
Okay, sir.
So my second question was around the gross margin.
Sir, I just wanted to understand, is there a threshold gross margin below which you would not?
Or how do you look at this margin number.. is it growth number, internally, what is the benchmark that you kind of look at just to help us understand?
Yeah, so.
Amit Syngle
So if you look at the gross margin depends on a lot many parameters.
To that extent, I think the correct parameter to kind of look at is PBDIT.
Where we look at possibly seeing that can we maintain the PBDIT in a certain range, and that is something which would then get back calculated to gross margins overall, a lot of other factors in terms of what we would kind of look at overall.
So I think the correct way to look at is that we will always see the PBDIT as a percentage in a certain kind of a range which is there to that extent and that is something which would be possibly a good way in terms of keeping on monitoring in terms of which we are kind of going in the market ahead.
Avi Mehta
Sir, if I may push would you be able to share that range ?
Amit Syngle
So the range is possibly could be anywhere between 19 and say 21.
So, that is the kind of range I think would possibly be there.
Avi Mehta
Thank you very much.
That's all for myself.
Moderator - Thank you, Mr. Avi Mehta.
Our next caller is Mr. Alok Shah (Ambit Capital), joining us on the zoom platform.
Mr. Alok.
Please unmute yourself and please ask your question by stating your company's name.
We will come back to you Mr. Alok.
Meanwhile, we will move on to Mr. Shirish Pardeshi (Centrum).
Mr. Shirish Pardeshi, please unmute yourself and ask your question.
Shirish Pardeshi
Yeah, hi.
Good evening.
Amit and the team.
I have two questions.
The first question is obviously on the volume recovery and you have sounded very confident in terms of the rural and T1 recovery.
Could you quantify how the growth is actually happening on ground whether the metros and semi metros are really driving and pushing your volume.
And how do you see the tier 2 and tier 3 markets panning out going forward.
Amit Syngle
So, I think I explained that point, when you look at the overall dynamics of the market, we have seen a larger ingress of COVID into the smaller towns and smaller cities this time, as a result, their fight back to normalcy has taken some time in terms of what is there which is in contrast to what was last there last year.
So what has really happened is that the metros, T1 and T2 cities actually have kind of sprung back faster in terms of what we see.
And, you know, from say, the last week of April, to the last week of May to that extent possibly they were down to that extent given the differential 16 | P a g e lockdowns which were happening across the country, but they have sprung back far more faster in terms of contributing to the demand.
And we see that definitely the demand conditions have been such that the growth rates which we see in Metro, T1, T2 cities are to the range of about 25-30% higher than what we see the growth rates which are happening in the T3, T4 cities to that extent.
So I think that has been very, very strong redeemer with respect to seeing the volume numbers which are happening, and also, I think all the volumes, which I'm sharing doesn't have too much component of any inventory in the pipeline to that extent; in our case possibly, the inventories are not high.
So to that extent, this is largely the secondary sales which you are seeing in the market to that extent.
So there is no parameter which really says that this is not the secondary sales which are happening in the market.
Shirish Pardeshi
That that's wonderful.
But while speaking to channel partners, I think one of the new growth driver for the company is also the exterior and the waterproofing business.
So, if you can quantify non decorative per se, but what would be the contribution or growth numbers in these two segments?
Amit Syngle
No, that would be difficult to kind of really share in terms of those numbers to that extent in terms of quantifying, but I can really share with you that overall the numbers have been as I said very very healthy in these areas and the T1, T2 contribution have been much higher to the levels of 25 to 30% higher than the T3, T4 cities.
Shirish Pardeshi
Okay, my last question is on the non decorative paint segment, which is decorative home decor and all; how do you how do we look at this business in next three years, I mean in terms of contribution, profitability, number of stores, or what else can get added because you did mention that there is a lot of thrust on adding new products in the home decor segment.
Amit Syngle - See overall, as we see is that given the large share of the coatings in the overall business in terms of what we are doing, because I think that will still remain because the coatings business continues to grow by that 15- 20% kind of zone which is year on year to that extent.
So even if a new category which comes in you know, finally what we will see is that in the coming three to five years it would be possibly contributing to in terms of a single digit to an overall kind of business to that extent, both with respect to top lines or in terms of Bottom lines to that extent.
It will not something which will become immediately a substantial part of your business; Because you must remember that the base business is really gallivanting and growing in a very, very strong manner.
And it is not that this diversification of getting into home decor is being done, because of there is anything which is happening to the parent business, it's being done because it really supplements the parent business in terms of coatings further.
So what we see is that, in a way, this business coming in will also kind of really keep on growing our basic coatings business.
So I think the overall contributions would remain at a single digit level.
Thank you, and all the best to you and the team.
Amit Syngle
Thank you.
Moderator · Conference Operator
Thank you, in the interest of time, may I request everyone to please restrain the question to only one.
Thank you so much.
We have Mr Alok Shah (Ambit Capital) back with us requesting Mr Alok to please unmute yourself and ask your question now.
Alok Shah
Yeah, hi, thank you very much for this opportunity.
Apologies previously was not able to unmute.
I just have two questions.
Firstly, over the next few quarters, would you be worried of any sort of macro headwinds in the rural market?
Or your economy range of product leading to any kind 17 | P a g e of deferment in a particular section? any visible signs as of now for you or the demand condition is made quite resilient?
Amit Syngle
No, I don't see any issues there.
Because as I said, even in the first quarter, both economy and the luxury range has done well to that extent.
So I don't see any headwinds with respect to any of the categories to that extent, I think, as we kind of move ahead, we will see a fairly holistic kind of growth going forward.
Yes, a little bit, depending on in terms of the purchasing power and this thing a little bit possibly, could be that people start looking at a little down from say, a luxury segment to a premium segment kind of a thing.
So there could be a little bit of cannibalization, which could kind of take place, but largely, I don't see that there is going to be any big structural level changes in terms of really kind of giving a very different profile to our mix.
Alok Shah
Got it got it.
This is really encouraging and just quickly, what were your capacity utilization levels currently and any capex guidance?
Amit Syngle
So, overall, I think, you know, the levels are increased from last year.
So, we would be currently I think, when we look at the levels of July, we will be at anywhere between 70 to 75% kind of capacity utilization.
So, I think there is enough kind of capacity which is available across locations to that extent and Currently, we are not putting any embargo on the capex.
So wherever the capex is required, we are kind of looking at going forward and putting that capex in terms of areas which are required.
Moderator · Conference Operator
Thank you, Mr Alok.
Our next participant is Mr. Manoj Menon (ICICI Securities) who has joined us from the tele calling.
Mr Manoj Menon, please ask your question to the panelists.
Manoj Menon
The first question Amit is actually on, you know, the, in the last year or so, it appears in our primary research that the unorganized segment has significantly suffered.
You know, it seems quite obvious across different consumption categories.
So the question here is, you know, is there a quantification which you have on how much the unorganised would have suffered, and the organised would have benefited, if any, so that's one, and how much of it is repeatable into the medium term?
The second question is, you know, is crude linkage is even relevant, given the significantly higher, you know, proportion of emulsions and the water based products that you have, and the third, maybe I'll come back to this three months later in the call was I was just wanted to hear your thoughts on the capability building, which you are doing as a company, which is completely qualitative on the non paints business, the people process, backend, etc. Thank you.
Amit Syngle
Getting on to your first question, I can just tell you that it's very difficult to quantify what is the share of the unorganized and what is the share, we are taking away and so on so forth, because see none of the unorganized figures are published.
And to some extent there are more than 75- 200 organized play unorganized players who would be doing anything from ranging between, you know 20-30 crores to about 400 -500 crore s kind of zone.
So, I think the whole area is very, very big from that point of view, but in general, what I can tell you is that, from the quantification we have been doing, what we see is that the unorganized companies have done very well in the regions where they are based actually, to that extent.
So, the regional players have done quite well, it is only the unorganized companies who had a little bit of a Pan India kind of a business where they have suffered because their supply chain efficiencies have not been able to bail them out to kind of reach all parts of the country to that extent.
So, I would say that, by and large, a lot of players have their regional strengths, and they have been able to maintain those regional strengths very, very strongly.
But it is only that what we are seeing that on a pan India basis, some of these companies possibly are kind of suffering.
18 | P a g e Overall, what I see is that the largest share, last year we have gained is from the organized sector and not too much from the unorganized sector to that extent in terms of we look at it, and therefore, going forward, I think we are very clear that whatever share we have gained is something which will stay with us in terms of going forward.
And it's not something which is kind of going to go anywhere to that extent and that is something which we continuously have strategies in terms of what we need to do so, I think we strongly look at in terms of looking at our market shares in a very, very strong manner.
So that's the question one, the second question, in terms of what you were asking was about, I will jump to the subjective part of the question in terms of what you asked, I think you're right, as far as the home decor business and the diversifications, they require a different set of kind of competencies, which kind of come in, we have a very, very strong in-house functional training cells, which really work right from the induction of the person to look at in terms of what we are able to kind of do in terms of really nurturing the person in that direction.
At the same time, we do take a lot of specialists, for example, to kind of tell you that overall at India level, we would have now almost like 1000 colour consultant designers kind of people to that extent, who are kind of really looking at, you know, educating the customer really kind of getting the whole area of design in customer's mind, looking at colour consultations going head to that extent.
And the whole area of services, which I spoke of @ home services, are the areas in terms of what we have been strongly looking in terms of going ahead in terms of what we can do in what we can really kind of go look at.
So I think we have a very clear defined program, in terms of what kind of skill levels which you want to induce in certain existing people.
At the same time, what fresh ingress of specialized people we need to kind of take as we kind of go forward.
And the third question quickly to answer in terms of the point of view from the raw materials point, which you asked.
Yes, I think, to some extent, if you look at crude and crude derivatives, to that extent, they kind of really look at contributing to a certain percentage in terms of looking at the overall business.
But yes, we have been trying to move the business to the water based kind of a zone going forward to that extent.
And I think as we kind of go forward, that's a balance we maintained to that extent.
And I think a huge kind of deployment is towards looking at economies of scale, looking at sourcing efficiencies, looking at formulations efficiencies going ahead, and I think that would be the basic part in terms of what we would maintain as we kind of go ahead.
Manoj Menon
Thank you Amit.
Appreciate, superb.
Moderator · Conference Operator
Thank you.
Our next question is coming from Mr. Aditya Soman (Goldman Sachs) joining us on zoom.
Mr. Aditya Soman, please unmute yourself and please ask your question.
Aditya Soman
Hi, good evening.
So just one question from my end.
I mean, in terms of, I think when we discussed the numbers, you indicated that of your growth was obviously stronger in metros and and rural.
But if you look at the mix, that that the sort of the difference in the sales growth and the volume growth actually widened.
What would be the explanation for that?
And then in terms of input costs, again, I mean, I'm not very clear why we haven't taken pricing, it was just and why we feel a lot more confident about pricing in the last 10 days or so.
Amit Syngle
Okay, see, first of all, from a point of view of overall product mix in terms of what is there, I think overall, we have been strongly focusing in terms of the upgradation emulsions in a very strong manner, which is upgrading the conventional distemper user to organised emulsion coming to a smart emulsion to that extent and that is something which is a foray, which we have done in not only in T3, T4 cities, but also in T1, T2 cities in a very, very strong manner.
19 | P a g e So, we are seeing that type of growth happening in terms of those things very strongly to that extent.
And that is something which is showing in our mix as well in terms of going forward.
At the same time, we saw a large uptick in terms of the luxury, and the super luxury products, which I mentioned with respect to our exterior and wood finishes, products, which are there to that extent, and that is something which is also showing to that extent coming from the T1 T2 higher demand, which is there.
But I would say that, you know, we should not read too much in the mix at this stage.
Because what really happens in a COVID like scenario, the whole consumption patterns get disrupted.
We don't know really, who's coming in, why is he coming in.
And there is also what happens is a little bit of downgrade, which starts happening in terms of certain categories to that extent.
So I think what starts creeping in is a little bit of irrationality into a rational behaviour at that point of time.
And therefore, I would only say that we should not read too much in terms of what's happening to the product mix at this point of time and look forward to a normal quarter and see in terms of what's really happening with respect to the product mix there, to that extent, so I would kind of read the situation like that.
Moderator · Conference Operator
Thank you, sir.
Next question is coming from Mr. Vishal Punmiya (Nirmal Bang).
Mr. Vishal Punmiya, please unmute yourself and ask your question.
Vishal Punmiya
Yeah, thank you, Vishal, from Nirmal Bang.
So my question is, again, a follow up on the previous question on the mix, if you can just quantify the mix of economy/bottom of the pyramid/ value for money products for us currently, and the same, if you can give the number for FY 20 that would be really helpful.
Thank you.
Amit Syngle
No, I think if I have to do that, I have to open several Excel sheets in front of you to kind of show you all the kind of percentage contributions like that.. that would not be really possible to that extent, but what I can tell you is that from an overall mix perspective, if you take the entire category of economy products to that extent, you know, the overall growth rates have been to some extent, higher as I said, overall, and the growth rates at the luxury end have been higher.
It's the premium and in the middle, which has got you know, compressed a little bit to that extent, as we see and that is how the overall mix is emanating.
And within this if you look at the T1 – T2 cities have done much better in terms of growth rates of both 25% kind of 25- 30% higher both in economy and in luxury products to that extent.
And if you roughly look at the you know, the Metro, T1- T2 kind of cities would contribute to about, you know, 40-45% of kind of business, which is there overall in the mix.
So, I think that's the stats which I can definitely share with you in terms of how it kind of looks.
Vishal Punmiya
Okay, thank you.
Moderator · Conference Operator
Joining us on a teleconferencing call right now is Mr. Robert Marshall (Newton Investment).
Mr. Robert Marshall, may I please request you to ask your question to the panellist.
Robert Marshall
My question is linked to the previous one on the mix effects and so I was wondering how much of an effect that has on the gross margin.
As obviously there's being kind of raw material effects, operational leverage effects and then there's mixed effects too.
So I was wondering what the end of the key components were in terms of gross margin and so to what extent you're expecting kind of reversals and also what your anticipations are in terms of raw materials.
So to what degree do you need to increase pricing or to what extent you want to etc. 20 | P a g e
Amit Syngle
Okay, I see one of the reasons in terms of which was also kind of coming in is that how do we kind of look at in terms of increasing the price in the market depending on the raw material increases which are taking place, one of the things which possibly which has upset in the Q4 and Q1 of this year is mean that this whole thing of the lockdowns coming and the market not having a clear period in terms of what we could kind of really take.
And that is why as I said in Q1, we have taken about a 3% kind of a hike in terms of going forward.
We also feel that if you increase the prices, suddenly by 7- 8% in the market, it creates a lot of imbalances with respect to, you know, the rates in the market, which kind of happens, which causes inconvenience to the customers in terms of how they kind of deal with in terms of going forward.
So, I think, you know, if you want to know that the correlation between raw material increase and pricing, I think it is a little bit of a deferred increase in terms of what really takes place.
And consequently, same thing, when it kind of the raw material prices reduce, again, it's a deferred decrease.
So, I think from both ways, it kind of we want to balance the market, we want to see that the market doesn't come become very, very competitive from the point of view offering differential rates to the customer.
So, I think we take a little bit of a steady view in terms of how we want to kind of decrease over a period of time, and this time, what has happened is that the material increase has been fairly unnatural, in terms of the way it is kind of happened in terms of going ahead, and that is why we have just taken a certain amount of increase and as we kind of go ahead, we will take more increases in terms of looking at, you know, the situation going forward.
Robert Marshall
Can you speak to operational leverage, so kind of where you're at utilization, etc, what the effects of that?
Amit Syngle
Yeah, so, from a point of view of, you know, the leverage in terms of what we get is also a function in terms of how we can see that depending on how the raw materials profiling is going on, how we kind of look at bringing that whole part into our formulation efficiencies, and look at alternates in terms of what we can get from the point of view of certain raw materials to that extent, and also look at you know, multiple vendors, so that you are able to kind of really see that there is a differential which kind of comes in.
The leverage obviously comes in given the scale, which I think we operate and to that extent, and therefore, what we do try to do is that, using that scale, either you are able to kind of negotiate much better or you are able to kind of take advantages of the shortages which come in the market and look at in terms of a prolonged period where you will not get into shortages and get some commitments from the player, given the fact that your requirements are large.
So that's the kind of leverage in terms of what we would kind of take going forward.
Robert Marshall
Do you have any kind of strong views on the raw materials?
Are you expecting it to stay at these levels?
Are you expecting a significant retrenchment?
Amit Syngle
So by and large, we think that, you know, they might stay like this, there is some softening, which is expected in terms of what is there to that extent, which could be the tune of about 1-1.5% kind of zone, but I don't see too much, softening of prices immediately.
Moderator · Conference Operator
Thank you, sir.
We request our participants to refrain their questions to one number only.
Our next participant is again joining us on the tele calling, Mr. Percy Panthaki (IIFL).
Please ask your question to the panelist.
Percy Panthaki
Hi, sir, I just wanted to know, I mean, I know it's difficult to do this, but your best estimate as to what is the COVID impact on the top line for this quarter?
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Amit Syngle
Okay, see, if you look at from a CAGR perspective, actually, I would say that the double digit, both volume growths and the near double digit value growth to that extent, kind of really indicates that possibly the impact really happened in the month of May and to some extent to some number of days in April.
But I think what we did was we could recoup up some of those volumes in the month of June to that extent.
So I would say that it's not that we see that there is too much of an impact.
What is an impact is basically the whole area of production, efficiencies in terms of working, in the distribution.
And some of those inefficiencies which have crept in, given the various kinds of you know, you know, the kind of conditions which we have seen.
So, whether it is the working capital some of those areas, So, overall on demand front, I would say that, it I don't see that there is too much of a depression you know, effect apart from May, part of which we have recouped and part we will possibly get into the Q2 numbers in terms of going forward.
However, the whole other areas which are in and around is something which has definitely taken a toll in terms of you know, the thing there.
So, I think overall this is a way which possibly, while it was more vicious, overall I think, April and June being good, we have been able to kind of really recoup a lot of those volumes
Percy Panthaki
Right fine.. very quickly deriving the pricing from your volume and total value, it seems the derived pricing is negative 7-8% which is of course mix to a large extent, this is despite a 3% price increase.
So, in absence of that the derived pricing plus mix would be minus 10 and this is in a situation where the metros etc have done well.
So, just wanted to understand why this number is so huge this quarter?
Amit Syngle
No one number which is very clearly is that because we have not taken the kind of increases which we would have kind of taken because that's a clear you know 5-7% differential which is coming in the gross margins, which you see because of the material inflation being much much higher than the price increase which we have taken to some extent.
Secondly, it is a little bit of the product mix in terms of what you are seeing overall you know, because typically the volume value gap that you are seeing overall to that extent is still about 11% if you see in the overall range.
Normally, that gap is in the range of about 7-8% kind of a thing.
So, there is a impact of 2- 3% which is coming because of the mix impact which is there in the market to that extent and as I said that even in Metros, T1, T2, we cannot take for granted that the luxury segment stays the way it is to that extent and we have seen that in some cases people have downgraded and looked at other options which are there to that extent.
So I think that's how we would kind of sum up in terms of how the overall pricing equation in the mix is kind of looking.
Percy Panthaki
Okay, so, thank you very much.
Moderator · Conference Operator
Thank you.
Our next question is coming from Mr Kedar Kailaje (Fortress Group) from zoom.
So, Mr Kedar Kailaje request you to please unmute yourself and ask your question.
Kedar Kailaje
Yeah, thanks for the opportunity.
I am Kedar Kailaje from The Fortress Group.
So, my, I had two questions.
So firstly, in the paints segment, how would you compare your growth versus the industry.. have you gained market share here and secondly, in the waterproofing segment, again have you gained market share here and since the competition is intensifying, how do you see or do you see any pressure on the margins going forward?
Amit Syngle
Okay, first of all in terms of you know, the various regions as I said, South is the only region which has not possibly grown so, much given the fact that we have had more pressing situations 22 | P a g e in terms of lockdowns in various Southern markets be it Karnataka, be it Tamil Nadu, be it Andhra or Kerala to that extent.
However, all across other places, we think we would have definitely grown better than competition obviously, all the results are not out as of now and so, we don't really know you know, we are the first players to kind of in the industry to come out with the results.
So, I think in a month's time we will know in terms of what the actual situation is, but the way we have kind of worked, the way we have seen various markets, we have a reason to believe that definitely we would have kind of gained market share in the market to that extent.
As far as the waterproofing market is concerned, you know, the market is pretty big, you know, the market size is pretty big in terms of what is there we also see that you know, there have been no paint players in the market, to that extent, you know, we were the first ones to kind of really enter that market as a paint player to that extent and after us, we have seen all of the other companies followed us in terms of looking at entering that market.
We believe you know, the whole market here lies in terms of one the, the ingenuity of your product in terms of the solutions which you are able to offer.
So it's a product which is not like a product which you advertise and it sells.
It sells because you are promising a solution and a certain promise to the customer and it kind of works in tandem.
A strongly with what is the capability of your product and secondly, what is the skill set you have imparted to a contractor or applicator to apply that product and what is the kind of warranties which you are giving in the market.
So I think it's a very solution oriented product in the market, it's not very easy for a player to kind of come and start replacing others.
We have worked very, very hard in this category one, in terms of getting the ingenuity in our products.
Secondly, also looking at training a lot of people and third, based on that training and the product, we're looking at offering certain warranties in the market to that extent.
So I feel that it is a category, which takes time to kind of get in and it's not very easy, even if competition is increasing.
You know, I think the player which kind of really is promising a solution and is an expert in waterproofing would kind of stay ahead.
Moderator · Conference Operator
Thank you Mr Kedar.
Our next question is from Mr. Richard Liu (JM Financial).
Mr. Richard Liu, may I request you to please unmute yourself and ask the question to the panelist.
Richard Liu
Thank you.
Amit, I just wanted your perspective on gross margin.
I know you've talked a lot about it already.
But the thought that I have in mind is as under.
You talked about a threshold EBITDA margin of about 19-21%.
Whereas if I look at it in, you know, for the month of for Q1, I think the console level, it was more like 16- 16 ½ , your gross margin has fallen very, very sharply from the last two quarter level to whatever it is right now.
And yet you are taking price hike, which is in the, you know, in the ballpark of about just about 1-2%.
So, I know, you talked about balancing the market, etc, in terms of not taking sharp price high.
But I just wanted to get your perspective on how you see this whole gross margin things shaping up, going forward.
And you know, how much of pain do you see, to that extent before, before you see things and things balancing out either through your own pricing action or through the through raw material prices softening?
Or operating leverage or whatever, there are other things you said?
Amit Syngle
Okay.
So I see one of the things is that when I spoke of a certain PBDIT, I think, you know, if you look at a standalone business, which is a major contribution in the console, we are still at about 18.6% kind of a thing there.
So I think, from the levels, which I indicated, I think, since that's a larger contribution, that is something which we are aiming at in terms of kind of getting on to, as far as you know, the consol business, if you look at the other markets, I think the international business has been one of the businesses which has not done well, to some extent, because of the you know, Asian markets, having a very large ingress in terms of the COVID, especially in Nepal, Sri Lanka, Bangladesh, Indonesia, kind of markets, to that extent.
What we are very confident as we look at the 23 | P a g e quarter ahead is that since these markets have started opening up one, we feel that, you know, the situation from the point of view of the International would be much better to that extent in terms of looking at it.
And what we are saying is that we are not looking at a percentage alone in terms of increase, we are looking at larger increases in the coming time.
So 1% is just something which we have announced now we are taking more increases, I think as we kind of get into the quarter to that extent, and therefore I think, the total impact will be much higher in terms of what we take, as a price increase.
So what we see is that, you know that we should be able to cover up a large chunk in terms of looking at going ahead, we also expect some softening of the prices.
So I think, as a combination of the two going ahead, I think we should be able to cover up, you know, a chunk of this kind of a deficit in terms of what we're seeing.
Moderator · Conference Operator
Thank you.
In the rest of time, we will take that as our last question.
Thank you to our panelists and to all the participants for their valuable questions.
May I now request Mr Amit Syngle to please share his closing address?
Amit Syngle
Okay, good.
Having spoken to you, I know that there have been far more requirement of questions and so on so forth.
And possibly I think what we'll have to do is next time is we can keep maybe the presentation a little bit more smaller and far more crisper to that extent so that we can accommodate more questions to kind of come in.
But I'm really thankful to all of you in terms of coming and joining us for this meet.
And, you know, hopefully I've been able to answer some of your queries strongly and I see that wishing you all the best and keep safe.
Thank you. ###