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 today we have participants joining on the Zoom video platform and also via telephonic platform.
Requesting all participants who have joined via zoom video platform please use the raise hand feature to ask a question to the panelist; kindly unmute when given a chance to ask the question, please say your name and company name before asking the questions.
Participants connecting via zoom video platform can post their questions on the chatbox too and we shall ask them on your behalf.
Participants joined via toll-free numbers, please press *1 to ask your questions to the panelist.
Please say your name and company name before asking the questions.
Going forward we have a first question from the telephonic platform Mr. Abneesh Roy (Edelweiss).
Sir, can you please ask your question.
Abneesh Roy
Yeah, thanks for the opportunity, this is Abneesh Roy from Edelweiss, so I have got 3 questions, the first question is on the rural and overall volume growth.
So for rural, you have put out a positive outlook, if you see HUL has been a bit cautious and reason especially he said that in last two months rural FMCG is now at one-third of urban FMCG and has come down sharply, so how confident are you of your outlook, that is the first one on the rural volume.
On the overall volume, H2 has a very high base.. given that are you confident of a double-digit volume growth on YOY basis in the second half?
Amit Syngle
So overall what we look at is that what are the signals we are getting in the market is that Asian Paints has taken some very strong steps as far as the rurban markets are concerned is and in T3/T4 centres, we have looked at expanding our network, we have opened up as a briefed in this thing a lot of retail points so overall to that extent.
We also see a lot of upgradation which is happening from the unorganised sector to the organised sector as a see it, the whole area of monsoons have been pretty good and that is a positive sentiment and we think that that is a boost to which is definitely going to happen in the agrarian economy.
All these factors are indicative of a good growth which we see especially in the rural sectors going forward and this is basis our experience that even in Q2, when we look at rural centres, while T1/T2 centres have done much better, but I think as I said, T3/T4 centres have also done equally well.
So I think we see a lot of opportunities from the point of view of upgradation, from the point of view of demand for newer categories like waterproofing coming, and also in terms of the fact that the sentiment is going from good from the monsoons point of view.
So I think we are pretty confident that we should be able to kind of login double digit growths here as we look at the second half.
Abneesh Roy
So that is very helpful.
My second question is on the broader strategy level.
Since you have taken the leadership at Asian Paints, I see a very high focus on market share and expansion into adjacencies.
Is this the right time to do it given 4 decades high gross margin pressure.
Now if I compare your results to HUL, I find it completely extreme.
For example, in volume growth, you have done extremely well aided by market share expansion with 34% volume growth versus 4% volume growth for HUL but on gross margin, it is completely different and EBITDA margin is completely different.
HUL EBITDA margin only 35 bps compression, your case 900-1000 bps. So my question is, given such high gross margin pressure for everyone and including you, would you need to temper down your focus on market share and going into adjacency.
Launching full page ad for example for your home furnishing, obviously needs money.
Similarly, in terms of 12 | P a g e focus on the market share, you will grow faster than the peers, but again would you need to focus more on profitable volume growth rather than just volume growth?
Because you did say that next one or two quarters, margin pressure will remain.
Amit Syngle
So what I see is that you know I want to divide the answer into two parts, first very clearly you know this kind of inflation has been unprecedented, we have never seen this kind of inflation of 20% levels which has been there in the past as I said for the last about 40 years, we have never seen this kind of inflation which has been there to that extent.
I feel that, you know given the fact that what we have kind of, you know, put as clear plans for the next quarter in terms of the price increases in terms of what we are taking and some of the work which has been done from the point of view of material formulations and other price controls, I think, we are quite confident that we should be basically by Quarter 4 definitely get into our EBITDA ranges and prop up the gross margins in a strong manner as we kind of go forward.
We feel that our entire work which we are doing in adjacencies which is the area of home décor and other areas, it’s not something which is so big that today any spends in those categories can affect the core business margins to that extent.
The core business margin story is only because of the very high inflationary trend in the raw materials in terms of what we have seen in the coatings industry to that extent and what we are very confident is that going forward, we would still kind of retain our strongest strategy with respect to the volume growth which should be intact because that is the strategy which we have taken very clearly, but along with that, we have a clear plan in terms of how we can look at a stronger price increases in terms of getting the margins back.
We think it’s just a matter of time in terms of getting that thing done.
It’s not something which is a very big area of concern which we are saying and I think the whole focus is definitely back to profitable growth.
Abneesh Roy
That is very helpful.
My last question, when any company sees 34-35% sales and volume growth, there is always operating leverage.
If I see your gross and EBITDA margin compression, both are in the range of 900-1000 bps, so what is the issue here.. is it very high ad spend and if your volume growth is anyway so good, why do you need to spend so much on advertising.
Is it again adjacencies which is taking away lot of advertising spends; any other line item you want to highlight, where the operating leverage has now worked?
Amit Syngle
So there are 2-3 areas, One is that we feel that when you look at the overall marketing spends or the media spends which we are making, we think that as a good brand, you know, there is always a certain share a voice which you need to kind of maintain in the market.
We need to kind of really think about the mid-term to long-term as far as the consumer is concerned.
You know marketing is not like an on and off switch which you can kind of take-off the spends are you know in one quarter and get them back in the second quarter to that extent and I think if you are a long- term player you would definitely look at possibly seeing that marketing spends is a very very strong part of the fact in terms of how are you kind of retain your brand equity in the market in terms of going forward to that extent.
As I said, you know the larger spends in terms of marketing are obviously in the core business to that extent which is happening and therefore it is not about adjacencies is in terms of which are kind of taking money in terms of going forward; the other area which is there is that, we see that from a point of view of variable overheads also, freight has been a very very strong kind of contributor, which basically, the inflation in the freight is extremely high because of the diesel rates and other things which have happened in the market to that extent and therefore that is another factor which is possibly also really contributing in terms of the overall 13 | P a g e higher overheads which have kind of happened and therefore shrinking the gross margins overall.
So I would say that you know, I don’t think that it is a good idea that we should kind of really see that we should really curb the overall marketing spends, but yes, I think overall when we look at both Q3 and Q4, we are looking at a measured stance in terms of what we need to kind of spend in terms of for real good growth in terms of what we want as we go forward, because as I said, I think the focus definitely would be on profitable growth.
Abneesh Roy
Sure that’s very helpful.
That’s it from my side.
Thank you
Moderator · Conference Operator
Thank you sir… our next question is from Mr Manoj Menon (ICICI Securities).
Manoj Menon
Hi Amit, Jeyamurugan, Parag and Arun.
Thanks for your brilliant disclosure friendly presentation.
Congratulations for that, a welcome change over the last year and a half.
I got a few questions actually so should I just go ahead because some of them are interlinked.
Just allow me to kind of speak out.
So point number one, for a large company like you with probably a 80% mind share, 70% profit pool share and 60% value market share, you know these are unprecedented times, but I am little wondering or confused that you know, why are you not exercising your dominance in the market in ensuring profitable; I understand that you did mentioned that in the next six months, one year, which I don’t really care, but when you are hit with lot of uncertainty in terms of let’s say planning right when input hits you, what is that stops you, because you have that level of dominance actually.
I am just trying to understand the way you thinking currently, strategy versus tactical because there are may be lot of tactical measures you might need to take given the competitive activity levels, which you may foresee in the next 12 and 18 months, that’s point number one.
How is the thinking.
That’s question number one.
Should I just go ahead or stop here.
Amit Syngle
Yes, Go ahead
Manoj Menon
Sure Sir Thank you.
Second linked to this sub point here is that when I look at lets say a small player like Akzo Nobel which seems to have taken a double-digit price increase versus you in the mid-single-digit; again there seem to be completely two different thought processes in the market.
You know you as a market leader and there is this company which is….. so that’s question number one..
The second is, I am not even sure if it is a relevant question to ask but I will still go ahead.
You know, given the dominance that you have and when you don’t take a price increase, obviously the informal get decimated.
Now, obviously in a capitalist society, it is not relevant actually to consider that, the way I look at it.
But the question here is that, you know, basically there are two levels of growth, formalization and consolidation.
Now if you accelerate the formalization and consolidation both very quickly, then your growth in the medium term in paints I have to assume that it will be in line with industry growth.
How are you thinking about the constraint because there is market share gain which is great, but the same time, are you utilising a lot of it or are you frontating lot of it, how are you thinking about the industry construct.
That is question number 2.. and the third one I will stop here is that when you talk about formulation efficiency as one of the key drivers, if you can give us some examples just to understand what exactly you mean, that will be super helpful sir.
Thank you.
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Amit Syngle
Okay, so that’s a lot of questions in terms of what you asked.
I will attempt to kind of answer some of them.
So from the point of view of overall profitability when you kind of look at, I think what we are very very clear is that you know that by and large as we kind of look forward, we will look at you know as we have shared earlier that getting PBDIT in the band of about you know the whole area of 18-20% overall, so that is something which is a clear focus and sometime back last year if you look at, the prices were very benign and we had hit levels of about 24% at that point of time to that extent and that was the time when everyone was asking whether this would be sustainable in terms of going forward.
So I think that some of these variations will kind of come in as we kind of see the kind of inflation which kind of really happen in the market.
Having said that we have taken close to about 7.5% increase which is there in the Q1 and Q2 areas, you know if someone does double digit by additional 2-3% , I don’t think so it really kind of alters things very much to that extent if the inflation levels are to the tune of about 18-20%.
I very clearly said that you, know the larger consideration is that we can also take 15% increase so on and so forth to that extent.
The larger thing is today that, have you got an eye on your consumer or have you got an eye only on your balance sheet in the short term.
Okay, I think it is very important to kind of see that when you are a player, you don’t play to short-term strengths, you play to strengths which are bigger to that extent and from that point of view, destabilising the market in terms of taking very high increases kind of does have a effect in terms of you know how the market kind of looks at it and with respect to the stability in terms of prices.
Also, I think considering the fact that these are not normal circumstances, which are happening.
We had a Q1 where basically the entire May went for a toss and then we had a Q2 which started where no one knew when the third wave will kind of hit us and there was always a perennial dagger hanging on the head in terms of this thing happening.
At that point of time, taking increases which would have really destabilised the demand to that extent which is there.
So I think, as a leader, we need to kind of really respect the consumer and look at respecting the market dynamics in terms of which way it is going.
I don’t think so there any short-term measures which kind of really help us in terms of doing.
So I would say that therefore that’s the larger stance in terms of what we have taken and some other player taking 2- 3-4% higher doesn’t really alter the whole story again.
You could have basically the gross margin shrinkage lesser by about maybe 100 basis points, but I think the larger damage on the gross margins would still be there to that extent.
So, I don’t really agree that 2-3% points here there would really matter in terms of changing if another player is doing it to that extent.
I think the other thing which is very very strong is that when from an overall industry construct point of view which we are concerned as I said we are very clear that we would like to kind of from the medium to long term clearly focus in terms of the band of 18-20% in terms of going forward and we would have strategies to kind of look at in terms of what we can do.
Our entire growth construct is from the point of view of growing the market and it is not only about taking share to that extent and I can give lot of examples here in terms of how we have done; the moment we got into waterproofing business, we have kind of increased the overall pie of the market in a very big manner so that all the companies in the industry have now got into the waterproofing business to that extent.
Similarly if you look at the entire area of wood finishes, we have really looked at converting the entire French Polish segment to melamine and a polyurethane segment which is there, so you are upgrading the industry and creating avenues for the industry to start growing into this, because we realise that the overall per capita consumption today of India as compared to some of the West market is something which is small and therefore it makes sense in terms for us as a industry leader kind of really you know upgrading and making the volume grows much higher to that extent and we feel that you know if you are able to do, one, I think it adds to your leadership and you will be 15 | P a g e always much higher than the market rate because people will kind of take some time to catch on and that is something which we will find that always from a volume value growth perspective, you will be definitely much higher than the overall market to that extent because you are working in expanding the market in a very very big way.
When we look at formulation efficiencies, what we really concentrate is that if there is a product which say a ‘Royale’, we would look at the entire formulation and we will see as far as the entire formulation is concerned, are there any raw materials which you can replace in the formulation which possibly are at currently trending on the lower side as compared to the original raw material which is there in the formulation; so long as basically the customer facing parameters of the product basically remain the same and today we do not kind of tinker with some of those attributes which the customer is liking in a product in terms of going forward; and therefore in a larger volume of the product, the moment you kind of really look at a replacement of a raw material to that extent with another raw material which is coming at a cheaper price, you talk of a price saving which comes and which kind of really helps us in terms of taking the cost out of the system.
I would also say that in Q1 and Q2, we have almost saved about 300 crores coming out of the formulation efficiency measures we have taken and this is something which is a strong initiative which is on further.
Manoj Menon
Thank you so much Amit actually, in fact, a truly I was taking some notes actually while you were speaking, truly appreciate the disclosure friendliness which you and the team are continuing.
I have just have one follow up and then I’ll come back in the queue.
When you speak about the price increases, capability versus price stability in the market, is this a very specific market leader sort of a challenge or is it a general challenge for every player.
The reason I ask is because when you have a certain presence in the market; let’s say if I go to a particular street there are so many Asian Paints dealers out there.
It is a very Asian paints specific problem versus a player who might have one store out there, right, from a price stability in that street point of you, am I understanding something wrong… thank you
Amit Syngle
No, I think, from a player who has you know one or two counters in overall market, it doesn’t really matter because their overall turnover would be so small that it doesn’t matter in the overall scheme of things to that extent.
So for them even if they take a 20% increase doesn’t matter really to that extent, so I do I don’t think so there is any comparison there
Manoj Menon
Absolutely understood because you have got the size; bigger scale actually… good luck sir... thank you!
Moderator · Conference Operator
Thank you sir, our next question is from Mr Richard Liu (JM Financial).
Richard Liu
Amit, Sorry I am harping on this again.
We have spoken a lot about this gross margin and etc etc stuff; I am just referring to the statement that you made in the press release that you expect gross margin to turn around strong in the quarters to come.
I know you talked about aggressive price increases and formulation etc but you also mentioned that some of things are already sitting in Q1 & Q2 in terms of benefits.
I was just doing some rough maths about how raw material prices are behaving; even if you take price increases of the orthodox say 12-15% year on, say at one go let’s say post Diwali, I am not able to harp on the situation where you get back to a gross margin which is higher than 40%.
I am sorry as I am harping on this, but , if you can take us through a detail, how you envisage this strong turnaround in this gross margin to a level which is 16 | P a g e let’s say 42/43 or whatever that you used to make earlier; and will you as a business manager be comfortable in taking a double digit price increase at one go, to really get your gross margin back or you think that there.
Amit Syngle
So 2-3 things, you know just kind of really substantiate your this thing I think possibly some of your calculations are based only with respect to the price increases which are there to that extent, you are right I think the pace of price increases will be a little more aggressive in terms of how we kind of look forward going if we have to catch on in terms of the gross margins as we kind of look forward and therefore, I think the next 2-3 months will kind of show that in terms of the pace of increases in terms of what we will take definitely there.
The second area is the overall area of the product mix because I think when you look at from the point of view of premium and luxury products, where obviously I think the margins are much higher and there are certain other categories in terms of where we could kind of really grow especially for example if you look at even the area wood finishes and other areas; I think a strategically taking a mix change is something which is the other thing which really kind of adds in terms of the overall numbers in terms of what is there and the third area as I said is in terms of looking as far as the whole area of material sourcing and formulation efficiencies are concerned.
There can be bigger gains which can come out of it because there are already a series of initiatives which are kind of going on there and the fourth point which is also there is that if you take a keen eye in terms of the work which we are looking at from the point of view of overall overheads and also looking in terms of how we are spending for the topline, I think, those are the areas which were looking at consolidated as an overall view in terms of taking a … but I think you’re right in your assessment that there would be a larger aggression in terms of taking slightly higher quantum of increases in terms of as we go ahead for the next 2-3 months in terms of looking at it
Richard Liu
Thank you… Related to this.
I think what you are essentially saying is that even if you have to take very aggressive price increase, I am not asking you to commit to a number, lets say something like a double digit price increase, you are comfortable…
Amit Syngle
No I don’t think so that we would take double digit numbers, but I think you could kind of vary the frequency in terms of the increases to that extend so that we are able to pace it out as we kind of go ahead.
Richard Liu
And the other thing related to this is that, I see that the inventory that you recorded for the September period versus what was there earlier, there is a dramatic increase.
It is not double, it is more than that.
Is is fair to assume that we are locking some raw materials at Q1 prices and have to do with the high Q2 prices atleast for the time being or how does one look at that.
That’s all from my side.
Thank you
Amit Syngle
No , I think it’s a good observation in terms of what you have.
It is right that the inventory has gone up in terms of both FG and the RM in terms of what is there.
I must remind you is that not only there is price inflation in the environment the whole environment is also very very uncertain.
Lot of raw materials have something which are not coming in by very easily, a lot of raw materials are not available in the market to that extent; so there is quite a bit of anarchy which is existing in the market in terms of the kind of availability in terms of some of the RMs which are there to extent because some of the lines are getting choked in terms of the imported products 17 | P a g e coming from China, the shipping lines are not working well , there is quite a bit of chaos happening with respect to delivery times and so on so forth which is kind of really put a lot of uncertainty in terms of the conventional way we would like to kind of stock up both raw material and FG inventories.
The other thing which I must point out is that the lock downs have taken a toll with respect to basically plant closures which are happening all-across and also with respect to the labour which is kind of working in the plants which has been erratic because of you know the location where it is, the state where it is and so on and so forth and some of the labour is not turning up, higher absenteeism which is taking place in production and so on and so forth.
I think one of the commitment to the market for a leader like us is that we talk of a certain level of an order filled rate to the consumer.
So, if an order is placed on to us we will try to say that at least 90% of the order is serviced at one go so that we have the confidence of the retailer in terms of that, here is the company which is promising you in an order because the whole paint cycle basically works on a certain ROI model and if the inventory is not serviced in that stipulated time it will kind of really go for a toss.
So I would say that the whole inventory inflation which you are kind of seeing, both from a RM and FG point of view is to kind of safeguard the entire area of the order fill rate and our commitment to the retailer very very strongly in terms of what we can supply.
So whether it is a retailer, whether it is a big project, whether it is a builder site, I think that is the kind of commitment we have in terms of what we will commit and for that basically what we see in the short-term measure, I think the whole inventories have kind of gone up to that extent but I don’t think so this is a systematic change which is happening it is only a say change which is happening because of the current situation which we are into that extent and I see this normalizing out as we can do go forward
Richard Liu
Thank you Sir.
Thank you very much.
Wish you all the best.
Moderator · Conference Operator
Thank you Sir.
Our next question is from Mr. Avi Mehta (Macquarie)
Avi Mehta
Hi sir, this is Avi Mehta from Macquarie.
I just had one question on the thought process on margins versus new sales growth.
Clearly, you know you always said that you want to focus on volume growth for the market but when you say profitable growth, is the understanding that you would not look at percentage margin but look at more EBITDA growth that you would want to achieve.
Is that the construct that you would be looking for or is the 18-20% consolidated EBITDA margin range that you would want to stick with.
Thank you
Amit Syngle
So there are very clearly as I said, I think as an organisation, we are committed in terms of looking at saying that the overall growth which we want from the market are coming from the point of view of growing the market very very strongly and not just taking the share from people.
In this basically, there is a lot of focus in terms of some of the newer categories like waterproofing and other areas like upgradation, what we are talking of in terms of looking at going forward.
So I think the commitment here is when I speak of profitable growth, we are saying that we will definitely see in terms of how we can really go forward and look at in terms of working on the product mix, in terms of seeing that, we get good margins from the growth in terms of the way we are kind of growing, so that basically we are able to get that range of 18-20% of the PBDIT in terms of what I spoke of.
So, I think it is not one thing for the other to that extent.
The challenge is something that we have to kind of look at both going together but at the same time, I think the whole area of the volume growth philosophy of the organisation will remain 18 | P a g e
Moderator · Conference Operator
Thank you sir.
Our next question is from Aditya Soman (Goldman Sachs)
Aditya Soman
Hi, thank you for the opportunity.
I am Aditya from Goldman Sachs.
So, the first question, Would there be a build-up for inventory at the channel just in anticipation of price increases, especially now that even the channel would assume that there will be price increase.
Amit Syngle
So what really happens if you look at the overall market construct, is that you know whenever you kind of announce a price increase, you know, a week before or five days before the increase there would be some kind of increase in terms of the pipeline inventories which would happen with the retailers; but you must remember that the retailers would also kind of know that they have to pay the company immediately because it’s not something which they can have a credit kind of a zone which is there to that extent, so therefore each retailer would kind of take a little bit of inventory pileup depending on the increase as per their capacity only and in lot of many cases what we see is that, it is not that the inventory really goes up very high to that extent.
It is only very few dealers who would be able to kind of do and block that kind of money in terms of going forward to that extent.
So, I think what we see is that it’s not that there is a very big pile up in terms of inventory which happens.
Yes, there is a little bit of a blip which comes in whenever there is a price increase which is announced but it’s not that something where any retailer will pile up inventory for the next 2-3 months in terms of looking forward from a retail point of you.
Aditya Soman
Yeah now that’s very clear.
So basically, you are saying is that there won’t be a very significant inventory build-up, there will be some build-up but not very significant.
And second question in terms are you also spoke in terms of shortages of input material, could you highlight any specific material where you are facing a shortage or a potential shortage in the future.
Amit Syngle
It is across categories.
So when you look at certain monomers, when you look at certain additives, whether certain crude derivatives, in terms of what you kind of look.
I think it is a kind of across, even you know the basic raw material which is titanium which is titanium dioxide, I think you keep on feeling the pressures in terms of the availability and the lead times have really gone up, which is there to that extent.
So, I think of all these areas are adding to the overall chaos.
Aditya Soman
Fair enough Sir, is it fair to say that your significant proportion of input cost is undergoing shortages
Amit Syngle
So, I don’t know what you mean by significant; but I think definitely when you look at a certain quantum of raw materials, as I said, a certain quantum of FG inventory which is kind of coming in, all this is something which is really contributing to it.
You should also realize that the fact that today, when certain regions are under lockdown and certain regions are open, there is also a differential stocking in our warehouses which will happen because the free goods movement is not happening to that extent and it also causes those disruptions which are there to that extent and similar things happen sometimes that the raw material may lie at the port for some time given the fact that there would be some constraints coming because of the environment.
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Aditya Soman
Understand, thanks for the clarification I will come back if I have any more questions.
Moderator · Conference Operator
Thank you sir.
Our next question is from Mr. Amit Sachdeva (HSBC Securities)
Amit Sachdeva
Thank you so much for the opportunity and this is Amit Sachdeva from HSBC securities.
Sir, I have just one question and it is about how your thought process evolving on the general gross margin construct.
Sorry I’m going back to the same little bit of debate again but pardon me for that.
See, What I observed in the 10-15 years is that you know that we have periods of crude going to 130-140 as well, we have periods of unprecedented inflation in 2012-13 as well and now as well and clearly shown that the volume growth is a priority and you are executing really well and the kind of network expansion that you have seen in the last two years is also very very exceptional.
I clearly see that the choices you are making are different from what you’re made in the past.
In the past, when the crude was touching even one 130-140, we have never touched these kind of gross margin levels.
At least this is a choice you make, it’s not that you are taking this margin, it’s a choice you make in my view…where you want to play and where you want to win and the choices you make as a result.
So, my sense is that the question here is that as a gross margin construct, not the EBITDA margin construct, EBITDA margin is a result of scale and several other things; But in the gross margin construct, are you now going towards say well I am comfortable with 40 and I don’t have to do 44-45 and we will drive that industry structure, industry economics towards more 40-41 rather than 44-45 and within that, we will maximize our EBITDA margin because it is about shaping competitive conduct as well.
It is about how the industry structure is evolving, new entrants.
Is that thought process more nuance than just saying that okay by Q4 we will have a higher margin.
I just want to understand how we should think about your own cost structure thinking in the way you maximise your volume and other things.
I hope my question is clear.
Amit Syngle
Yeah, I think definitely it is… So, what I think what we are very clear in terms of looking forward.
First of all, I would say that the past times which you mentioned of 12-13 and other cases when the crude went to 130, is absolutely not a comparable thing.
It was a time when only certain raw materials kind of went; it is not like a scenario which is now.. okay, as I have said it is unprecedented.
We have never seen inflation levels like this going from 20% 22% kind of zone because it is all across, it is not only in crude, it is not only because a solvent base, it is because of something happening across and in titanium, in monomers, in additives, in terms of lot of other raw materials which kind of go in terms of making the bulk of the coating industry to that extent.
If you look at some of the international organisations which are a big like PPG and other things today, you know everywhere people are talking of 25% 30% inflation levels which has never been seen in the last four decades.
I repeat, in the last four decades to that extent; and therefore it is not a comparable situation to just crude going to 130 .. okay; so I think that is something which is a very very clear point that the situation at the current point is a little bit more unprecedented to that extent in terms of this thing and at this moment, I think what we are very very clear that you have to be a very very clear balancer in terms of you know you want to kind of really look at starling through this situation.
Like last year was a situation, where we were starling across demand because of the lock down which are happening across the country to that extent and it was a very different scenario where there was a demand uncertainty to a different level but the prices were pretty benign and as I said that we were able to reach even 46% levels to that extent which is there; 20 | P a g e and suddenly we are seeing a scenario where the whole situation has turned upside down in terms of the kind of margins pressure coming because of the inflationary trend which is all round to that extent.
So I think we’ve taken a clearly measured stance in terms of taking a certain set of increases.
We have also said never kind of expected that the inflationary trends would keep on, you know the headwinds kind of continued in terms of the inflationary trends to that extent and therefore I think what we are very clear as I said is that we will have to come back to the levels of that 18- 20 with respect to PBDIT and therefore to sure up the margins, will have to kind of look at the series of action which I have already detailed earlier in terms of which is not only with respect to prices but across lot of other fronts in terms of what we are taking and I think we are pretty confident that as a leader we should be able to kind of take that.
Amit Sachdeva
That’s very very helpful Amit and thank you so much for your detailed answer.
Just wanted to get a last bit there, it is not a competitive conduct issue, that is not the way which is shaping your thinking.
Amit Syngle
As I said I think, you know, as an industry leader with possibly I think the kind of thinking we have, we don’t really look at the competitive conduct so strongly, because you know there are so many new competition which is just mushrooming up left right center.
If we start looking at competition we will not be able to kind of start concentrating in terms of our medium to long-term strategy which we have.
I think we are very much convinced that we have a clear strategy forward in terms of growing the market, really kind of leading the market and bringing about far more industry-level changes in terms of going forward as far as the overall consumption levels are concerned, the repainting cycles are concerned, the whole area of premium and luxury is concerned.
So, I think those are larger concerns to us in terms of what we want to shape up rather than looking at what competition is doing.
Amit Sachdeva
That’s very helpful Amit thank you so much and all the best!
That’s all from me.
Moderator · Conference Operator
Thank you, sir, due to the shortage of time, our next question will be the last question that we will be taking.
The next question is from Mr. Tejash Shah (Spark Capital)
Tejash Shah
Hi, thanks for the opportunity, this is Tejash Shah from Spark Capital.
I am just left with one question on the margin side.
So, one indirect lever of pricing intervention is cutting rebates.
Just wanted to check if there has been any change in strategy of rebates since the last one- year in the dealer network and how do you see that changing in the coming next six months
Amit Syngle
So obviously I think, see if you look at the whole area of rebating and discounts, I think it also varies from the overall market sentiment in terms of what is there.
Last year, when the uncertainty was definitely much much higher, I think other than the rebating levels were different in the market and there was some bit of rebating happening differentially in different kind of quarters to that extent which is there.
As we look at this year, obviously, in terms of you know the whole transition point when we were from Q1 to Q2, there were some things which we looked at in terms of how the sentiment can be improved with respect to some of the discounting strategies to that extent, but, as we see forward going forward, if there are large amount of aggressive price increases coming, then obviously I think the discounting and the rebating comes down in the market to that extent.
So, that’s an additional savings which really happens because the force of 21 | P a g e the price increases is pretty aggressive in terms of really you know incentivising people to kind of lift that kind of a material and really that serving as a discount for them to that extent.
So, I would say that the whole area of input discounting kind of varies with one the market sentiment in terms of which is there, the second the way you would like to increase your pricing to that extent but I think overall over the years, I think we’ve not really looked at too much variation of a larger stance in terms of the way we want to kind of deal with inputs and discounts.
Tejash Shah
And just one follow up on the dealer network that you spoke about sir; 40,000 additions in last 18 months is a very heartening number.
Sir any sense if you can give, are this new addition non-paint dealers getting added to the industry or you are actually gaining market share from expanding your network into other dealer network
Amit Syngle
So I think these are both direct and indirect retail points in terms of what we are kind of doing; It is different from retailers, where we are putting up our machines which is the direct kind of ingress which kind of takes place to that extent.
These are just kind of you know areas which we are trying to reach even smaller geographies which are there, look at even the alternate kind of a network which would be people dealing in hardware, people dealing with Electricals, people dealing in wood, people dealing in cement to that extent and looking at really seeing that today, you are able to kind of create overall kind of a footprint where basically we enable the consumer to really have very very strong access to overall paints and waterproofing in a very very strong way and therefore the numbers which we shared with you are both direct and indirect in terms of what is there.
That is why the numbers are so large.
Moderator · Conference Operator
Thank you sir.
That was the last question. now I request Mr. Amit Syngle to share the closing remarks, please.
Amit Syngle
So I think, it is great interacting with all of you and I think it is wonderful to hear some of the incisive questions in terms of what all of you have been asking and I have tried to kind of answer questions far more transparently, far more strongly in terms of the way we kind of look.
We are pretty confident in terms of how we see going ahead both from a point of view of profitable growth as we look at both Q3 and Q4 going forward.
As I said, the times are slightly more unprecedented, but I think as a leader we have very clear responsibility that we look in terms of growing the market and as at the same time we look at in terms of the return to the shareholders very very strongly.
So thank you all for coming and I think it’s been a great time interacting with all of you.
Thank you so much! ###