Asian Paints Limited (ASIANPAINT) Earnings Call Transcript & Summary

Good evening, and a very warm welcome to one and all to the Asian Paints Investor Conference Call for Q3 FY2022 results. Today, on the call, we have Mr. Amit Syngle, MD and CEO; Mr. R. J. Jeyamurugan, CFO and Company Secretary; and Mr. Parag Rane, GM Finance. May I now request Mr. Syngle to take you all through the presentation. Mr. Amit Syngle, over to you.

Good evening all, and welcome to the investor conference for the quarter 3 of the financial year 2022. Just to reiterate that as a brand, Asian Paint is there for delivering joy since 1942. And as a brand, we exist to beautify, preserve, transform all spaces and objects, bringing happiness to the world. So you can see that practically any surface, any space in terms of what is there is something which is transformed by the brand into a place of happiness. So when we look at the quarter 3, I'm happy to report that we've got a very, very strong double-digit top line trajectory, which is there, which is now continuing for the last 5 quarters in a very, very strong way. So if you look at it from the point of view of overall volume growth, that is the blue bar, which you see is about at an 18% growth over the previous comparable quarter. And if you look at value growth, it is at about 27%. What we've also highlighted is the fact that the CAGRs, I think it is very important because what we've seen is that the last 2 years have been a little bit abnormal in various parts of the year to that extent. And therefore, we have looked at the CAGR over 2 years and 3 years, which you can both see that, both on the volume front as well as on the value front, it is very, very strong and healthy, which is just indicating that the trajectory in which the business has been taking over the last 2 to 3 years has been very, very strong. And this is despite the fact that we have seen that the environment has been a little bit of uncertain, because of the COVID which has been prevailing over the last 2 years. When we see the 9 monthly kind of numbers, I think the numbers are even far more healthier, because we've seen a very strong Q1 and Q2 with respect to the top line as well. And we see very clearly that from an overall volume point of view, we are at about a 40% kind of a growth on a 9-month level, and a value of about 43% as compared to Q3 of last year to that extent. And therefore, I think these numbers are pretty strong by itself in terms of what has been indicated. Overall, as I said, CAGRs, if you compare, both the quarter 2 and quarter 3 -- sorry, the 2-year and the 3-year CAGR numbers are looking very strong in terms of the double digit at 20.2% and 18.8% in terms of the 2-year and the 3-year for volume. And for value as well, if you see the 3-year CAGR is at about 15%. So overall, the numbers seem to be very, very good from the point of view of top line. And I must indicate that this is something which has been the focus of the organization, and we are committed to the fact that we would like to kind of really be aggressive in terms of top line growth, as we kind of really look at growing and that also looking at profitable growth. Coming on to just to kind of show you the trajectory. As I said that the trajectory has been very, very strong over the last 5 quarters also, if you look at it. Overall, if you see the numbers within the blue bars, which is at very strong numbers, 32%, 47%, 105%, 34% and 18%. You can see the trajectory, which is there over the previous quarters. But more importantly, if you see the 3-year CAGR, I think that is something also which is just kind of revalidating the whole scenario of the fact that we have looked at, consistently growing at very, very strong, double-digit growth, which are there. And we can say that these growths are definitely much higher than the market in terms of what we have been able to see over the previous years and over the previous quarters to that extent. So I think that really tells the story about the overall top line in terms of the it has been kind of growing. Key updates from the point of the business, we feel that when we look at the numbers, which have come in for quarter 2, we have gained a clear 2.7% market share gain, which is there to that extent amongst from the organized players to that extent. And we feel that if you look at the volume market share gain, it would be even higher than 2.7% in terms of what we see. We've also possibly gained some share from the unorganized sector over this -- in the quarter 2 when we see it overall. So I think very strong share gains, if you look at the first half of the year, where the numbers are available in terms of the published numbers. Secondly, if I look at, in terms of what's really happening across various geographies, we have seen that quarter 3, especially if you take the metro T1 and T2 centers, they have been kind of growing at a much higher rate as compared to the T3, T4 cities, which is indicative of the fact that when we didn't have a COVID kind of a scenario and the markets were relatively open, we've seen higher growth coming from these centers in a very strong way. But I must say that even T3, T4 markets have grown at a good growth rate to that extent, a notch lower possibly than T1, T2, but they still have gone at a very healthy growth rates. Our overall focus has been in terms of the premium and the luxury space and in which we have grown in a very, very strong manner in quarter 3. It is also coming from the fact that the metro T1, T2 centers have grown much better and therefore, the premium and the luxury space has really gone in a very, very big way to that extent. We've also had a good launch of some of our newer products coming in this space, both at a premium and a luxury, and they seem to be doing extremely well in terms of how we have pitched those products going in. Projects was another very, very strong highlight. It really grew in a manner which is quite strong, and we looked at that, it kind of really indicated the fact that the real estate, the infra market was doing extremely well. We have grown across segments of builders, government, housing societies and so on and so forth. And a lot of good traction because of the Waterproofing and the other admixtures and other products, which we have at the construction stage, which is going on, which is giving a very, very big traction to our overall growths in this thing. I would even say that the Projects business has outgrown the Retail business in terms of the focus we've got in quarter 3. Overall, waterproofing is one story, which has continued for the last 7 years in a very strong manner. We have been consistent in terms of registering growths. Even quarter 3 was very, very strong. More than 50% growth coming in strongly here. And this has been the feature both at Retail and Projects, when we look at the overall business in India, and this is something which is really propelling the growth in a very strong way. The other category, which is a strong category for us and largely in the premium and the luxury spaces is of Wood Finishes. Again, this is a market, which is dominated by specialized products and technology-led products to that extent, and that is something which we have been driving very strongly. And we can say that amongst the entire organized sector, we are way ahead in terms of looking of at Wood Finishes to that extent, and that is something which has been a very strong focus in terms of driving it to the premium and then also looking at some of the Rurban markets in a very strong way. So that's the story in terms of some of the key highlights which wanted to detail. We have done very strong work with respect to wallpapers, and there's a launch which we have done this year with Sabhyasachi. I wanted to just say that this has done extremely well, and it is doing quite good at the metro T1, T2 cities level in terms of how we see. We've also done an alliance with GM Syntex, which has a brand called Pure. And in this, we have been able to sell as part of our decor story, a very, very strong range of fabric and furnishings across the country. We have now more than 600 retailers, who are selling this entire fabric range. And as part of our Decor initiative, we have been able to sell this in a very strong manner. And this is also forming a part of our high-end beautiful home stores, which are there. So this is an imperative, which is gaining now very, very strong momentum in terms of going forward. Some of the new products which have kind of come in where we have seen a very, very strong impetus is the Royal Glitz, which I spoke of in the luxury space, which has come in, in terms of, if I look at from the point of view of Smart Care and flooring zones, we have Epoxy Apcoflor, which we have launched. In wood, we have the Ingenio and the Aquador, which has come in to that extent. In the premium space, we have the ALL Protek Fire Retardant paint, which we have got a patent for. And in the adhesives space, we've launched the Trugrip Suprema. But one of the great products which we have launched now is, which is gaining very good momentum, is the Apex Ultima Allura, which is basically exterior exterior textures, which no other company can -- is offering in India in this way. Just a glimpse into it, 200 texture finishes, and some really kind of mesmerizing kind of finishes in terms of what we have launched. Goes both for interior and exterior to that extent. And we think this is a winner of a thing, which is kind of getting a very strong response from the market in a big way. Other things in terms of the update, we have been really focusing in a very strong manner at the network expansion. And this is something which has been going in a big way over several years now, but I think we have very -- made a very strong progress in the last quarter. And the overall year to that extent, we have added 45,000 new retail points almost over the last 7 quarters to that extent. Our entire Colour World expansion into newer towns, suburbs, smart cities have been very, very strong. We have retailing setup called the Colour Ideas where we make the customer experience decor and look at in terms of a guided journey into surface decor. And therefore, we have about 28 new Colour Ideas, which we have opened. And the total numbers have really gone above 450 shops across the country. We have now about 29 Beautiful Home Stores, which are functional. We have spoken about the stores earlier and given you a glimpse in terms of this is a store, which has got Decor under one roof. So this is all part of our whole home decor strategy, which you see. So as we have said earlier, a very, very big focus, which we have maintained is our transition from a share of surface within a home to a share of space. So we are not only about the 4 walls, we are now between the 4 walls also in the home. And we think it is a very, very strong strategy, which basically is also giving us a leverage on the core coating space in a very big way. How we see this is that, because it is the same customer. So in the customer life cycle, today, we are looking at the coatings customer going to a decor space and a decor customer coming to a coating space, and therefore, the interplay between these 2 strategies is very, very strong. And therefore, we think it is a very strong strategy in terms of getting into the whole business of home decor in a very big way, because it is complementing our existing business going forward in a very big way. As part of this, as you see, we have got these Beautiful Home Stores, which are, we call as, the one-stop Decor shops in which we are looking at everything, which goes into the home, right from kitchen, bath, furnishing, lighting, furniture, fabrics and everything. As I said that what I showed you, the entire Fabric and Furnishing business is something which is doing very well as part of the Decor. And we have also looked at the whole range of Nilaya and Royale Play in terms of going forward. So I think this is something which has done extremely well for us. And the whole Decor strategy is something which is strong. As we see in future, this home decor strategy overall should be kind of looking at contributing to 8% to 10% of the overall business. So we are very serious about this business going forward. And you will see a lot of action happening in the Home Decor space as we look at our future going ahead. Coming on to the other big differentiator which we have today. We have today a very strong services kind of a setup, which is there. I would kind of say that globally, in the industry, which is of the coatings industry, there is no other company who has such a big service footprint as we have today, what we have created. We have the service, which is what we call the Safe Painting Service, which is now spread across huge number of towns in India and it is a significant part of our entire strategy in terms of how we look at. We also have basically Beautiful Home Service, which is there, which is about the whole home decor. So I think -- and in addition, we also have a service called the San Assure, which is about health and hygiene in terms of homes. So if you look at the entire services framework, as we kind of go from a point of view of GMV, we can say that as we kind of keep on going, this will start contributing to almost about 7% to 8% of all our turnover. So this is a very big one. And we think that today, there is no other one in the industry who can really compete with us with respect to looking at giving this kind of a service, this kind of an experience, and this kind of a differential in terms of the overall business going forward. And if you look at the whole area, the inflationary trend has really impacted, if you have seen -- when we saw Q2, I think we saw a big impact in terms of what it has done. And obviously, we took a lot of price increase corrections, which were done in the month of November and December, where we took almost something like a 15% kind of a price increase, which was phenomenal to that extent. But at the same time, even this price increase happening, we've been maintaining a very strong volume growth and a value growth which has happened. Still, if you look at it, in quarter 3, while the overall margins, the gross margins have improved sequentially if you see from quarter 2 from 35.7% to 37.5%, I think the true potential in terms of this price increases, what we have taken would come in Q4. And for Q4, obviously, the margins will become very, very healthy. I would only like to point out that some of the gross margins, which we have seen in the early quarter 1 and so on and so forth, are something which were on the basis in terms of what we saw the year in terms of where the price -- where the inflationary trend was not there, and therefore, the gross margins were very, very high at that point of time. The inflation has overall gradually taken a shot in terms of this margins coming down, but we are hopeful now that Q4, we should see even a healthier kind of overall gross margin even over Q3 as we kind of go forward. I think one of the big things in terms of where there was a lot of queries in terms of saying that, are we really pursuing profitable growth in a very strong manner? I think the price increases, which have been taken, have been able to mitigate the effect of the inflation in a very strong manner. And we see very clearly that sequentially if you see, we have been able to move from a 14.2% PBDIT margin to about 19.6%, which is, I think, a very, very strong jump, which is there to that extent. And I think this is something which is clearly reflective of our overall intention and promising that we are looking at a certain band of PBDIT in terms of going forward, and we will continue to kind of pursue profitable growth in terms of going at the same time, we will be aggressive in terms of our top line strategy going forward to that extent. Coming to key business updates. First of all, global, the International business has been affected a lot in quarter 3 as well. We have seen a lot of disruptions, one earlier because of COVID happening all across to that extent. But I think what we've seen is that some of the markets like Africa has been affected very well, both Egypt and Ethiopia. Ethiopia, there's a strike, which is going on and Egypt was also hurt in a very strong manner. In addition, we had ForEx problems happening in Lanka and so on and so forth. So I think it was quite a mixed bag in terms of what we see. Still, what we see is that we have been kind of able to kind of grow the overall revenue, which is there. However, I think Africa was something, which was definitely down in terms of what you can see right on the screen. However, I think the larger impact came with respect to the overall inflation really kind of telling on the profits. And we had taken certain price increases across various regions, but obviously, they were not very -- the inflation numbers were far higher, and we tried to maximize it so that we are not able -- affecting the consumer in a very, very strong way. So overall, the margins, if you see the profitability, has been affected in largely all the regions, apart from South Pacific, but the larger impact, obviously, has been in terms of -- if you see Africa, Middle East and Asia as well to that extent. So, I think what we are confident is that overall, the overall revenue has been something which is very strong. And if you see on a 9 monthly level, we are still growing at about overall percentage of good growth across regions to that extent, apart from Africa. So overall, we think that top line, we will be able to grow. And I think as we go forward, having taken the price increases, I think the situation going forward will be much better as far as profits is concerned. We look at the Industrial business, the 2 joint ventures we have, the PPG-AP. Now here, again, there were obviously challenges, especially in the automotive sector, where we all know that there was a negative build, which was happening. There was a chip shortage, which was there, and the entire automotive industry has been affected. But overall, when we see in terms of revenues, we have still kind of done fairly well in terms of -- if you look at quarter 3, which we have grown by about 38%. Obviously, there was a bit of a depressed base last year in terms of what we looked at here. And in the other business, if you look at the AP-PPG business, which is the general Industrial business, it has been very, very strong. The growth has been to the tune of about almost 64%, what you can see on a 9-month level, and on a Q3 level about 33%. So overall, if you see that the general Industrial business has done much better. The Automotive business, which is coming under JV-1, in Q3, grew at only about 5% compared to the 9-month number, which you can see there. Again, like other businesses, I think inflation impacted the profitability here. If you see both on quarters, both the businesses were down with respect to the profits in terms of what we see, although at a 9-month level, we still see that PPG-AP is at about 1%, and the other general Industrial business is at a good growth of about 14%. So that's the net upshot with respect to the Industrial business as we go. Coming next to our entire business, which is about Home Decor, which is what we call the Kitchen and the Bath business. Both businesses have done exceedingly well. And today, both businesses have been able to cross the INR 100 crores mark in a quarter to that extent. And Kitchen crossed it last quarter as well and this quarter as well. And Bath crossed it for the first time in this quarter. So I think overall, the top line has been very, very strong. As you can see, Kitchen grew in Q3 at about 37% and Bath grew by about 42%. The 9-month growth has been also very strong from the point of view of top line, you can see 67% and 63%. The heartening part here is that we've got now, I think, the businesses sticking well from the point of view of achieving not only breakeven, but starting to deliver some profits as well. So Kitchen was at breakeven in terms of the overall PBT at the Q3 level. And when we look at Q3 in Bath business, we have actually got a profit there in terms of which we have delivered, which is very strong. So I think that is a very good indication that both the businesses now are on a good fitting, growing the top line, and even now the bottom line is something, which has started to do well. In summary, when we look at the entire stand-alone financials to that extent, the story is very clear that there is a clear double-digit revenue growth, which is happening, which is 28% by value in terms of coming -- we spoke about 18% by volume, to that extent. Overall, if you look at, the contributions have improved to that extent. However, at a Q3 level, if we see the PBDIT is about down by 11% and PAT is down by about 14% to that extent. On a 9 monthly kind of a scenario, we see that the revenue growth is very, very healthy at about a 43% growth. Gross contribution is also -- has also grown. The PBDIT figure is about 1% negative. And PAT is just about -- at about 0.1% profits to that extent. So overall, what we see is that the impact of the inflation has taken care of by the price increases in quarter 3 to some extent, which is there, and obviously, the full impact will come in quarter 4. But I think the story has been very clear that given the fact that we've improved the PBDIT as well, we have been still very, very strong with respect to growing the top line numbers in a strong manner in quarter 3 as far as the standalone results are concerned. If you look at the consolidated numbers, again, the revenue here overall, is at 26% in quarter 3. The gross contribution is just about -- up by about 2% overall to that extent. The PBDIT is about 14% negative and the PAT is negative by about 18%. So we can see the effect of some of the other businesses like global and all telling in terms of putting the profits a little bit down as compared to the stand-alone business in terms of what we see. At the 9-month level, again, the revenues top line, very strong at 41% to that extent. Overall margins are still grown. PBDIT is about 5% and PAT is another 5% down to that extent. So overall, that's the story in terms of what we see. Obviously, I think the stand-alone business has done much better as compared to some -- the global business to that extent, and that is something which is a story the consolidated numbers are saying. But overall, on a 9-month level also, the top line numbers are very, very strong, and we are hopeful that as we kind of go forward, the profitability numbers will also improve. Finally, I think this is a question which all of you have in mind in terms of what are we looking forward to. Obviously, I think with the third wave coming very strongly and the Omicron being there and so on and so forth, there are all kind of consumer sentiments, which have got dented to that extent. There are also state-level restrictions, which are kind of coming, which has kind of really had an impact in terms of some of the demand conditions definitely there. What we obviously see is that the current situation might continue for some time, but I think overall, what we have seen in the past also that it is only that we see a deferment of the demand, which kind of takes place. The demand doesn't go off to that extent. And therefore, what we see is that possibly, as we kind of enter Feb and then the month of March, I think those are going to be very, very strong, because there will be a pent-up demand to kind of support. And also what we see is that, as I said, the real estate and the infra market is up to that extent. So even Projects is something, which is supposed to kind of do well, as we kind of enter these kind of months and quarter 4 as we go forward. Overall, from a point of view of raw materials, we believe that the inflationary trend will continue further, although the kind of rate of increase, which is there, would be moderate in Q4 to that extent. But we've just seen that the crude prices have gone up and so on and so forth. So I think the inflationary trend will continue to be there for some time, and we will look at in terms of how do we really tackle it in terms of going forward, whether there is an increase -- more price increase is needed or what we need to kind of do, we will basically evaluate as we kind of go forward in the quarter 4. Overall, in the International portfolio, as I said, we are looking at really seeing that we can take some more increases, which are there, looking at -- seeing that how some of these markets really have kind of evolved, because the external market has been disturbed. And we are expecting that some of these things will ease out. The ForEx conditions will improve to that extent in certain markets like Egypt and Lanka. So overall, I think our estimate is that Q4 should be definitely better than Q3 in terms of going forward. So that's the overall outlook in terms of looking at it. Thank you so much for listening. Thank you.

[Operator Instructions] Now we have the first question from the telecalling platform and that is Mr. Abneesh Roy. Sir, please state the name and company name, and ask your questions.

This is Abneesh Roy from Edelweiss. Congrats on extremely strong volume growth and good margin recovery. My first question is on volume growth. So consumer behavior post Diwali, did you see a preponement of demand, because your price hikes, which are coming, say, in December and maybe even in November, because it happens a bit gradually. So that was quite well known in the media. The consumer also would have picked up, dealers and painters definitely would have picked up. So did you get some benefit of that? And second is, when you see [indiscernible] and FMCG, they are seeing rural slowdown very prominently. We have seen very high inflation in diesel prices, fertilizer prices, pesticides. Plus, we have seen a very sharp COVID wave too in the smaller towns. So could there be some lag effect on paint? Currently, headline numbers are not suggesting that. But in paint, do you see the rural growth at some stage getting at a lower level?

Okay. Overall, see, what we feel is that the festive season this time was very, very strong and we felt that the consumer demand, which came in was very positive at that point of time. So overall, when we look at October, in the entire quarter, was at the maximum volume growth to that extent. And therefore, October was a very healthy month and so was November to that extent. In fact, we feel that the overall volume growth would have been higher if in the second fortnight, we would not have been hit by the third wave of COVID kind of starting to that extent. What we feel is that largely to some extent, since we have seen that it was an early Diwali to that extent. And that is why also, we saw that a larger demand came in October in a very, very strong way, which basically kind of helped us in terms of achieving the overall volume growth, which we are speaking of to that extent. The second thing, which is there is that, we have seen that the effect of COVID very, very strongly in quarter 2. What we had seen was that, it was the T3, T4 cities which were performing extremely well, and they had given a very high growth number overall to that extent, because there was still a little bit of an impact in terms of what was happening of the COVID in terms of T1, T2, and the Metro and the larger cities to that extent. In quarter 3, we saw the reverse since the environment was much more open to that extent, the spending in the metro, T1, T2, has really exceeded the kind of demand, which was coming from the T3, T4 cities to that extent. We feel that, one, we did not see that the T3, T4 cities were way off the demand to that extent. So the demand was still pretty healthy, a notch lower than T1, T2 to that extent. And we still feel that the story, as maybe the other companies and industries are feeling, for us, I think, the T3, T4 has been very, very strong, and we have looked at a large part of network opening, looking at getting into upgradation products and a lot of work which we have done to kind of spruce up the demand in terms of the T3, T4 cities to that extent. So overall, what we see is that the story of T3, T4 cities should be quite relevant. The overall rainfall has been pretty okay to that extent. And I think there is still a strong story, which is there as far as the T3, T4 cities are concerned.

Sure. [ That makes sense ]. One small follow-up here. In the international markets, your price hike in paints would have been how much? And will the 18% price hike, what you have taken in India, will that be the highest that any paint business has seen in any other part of the world?

So I couldn't get the second part of your question.

So 18% price hike, is this is the highest in the world? So...

So, yes. In the international markets, see the inflation has been upwards of about -- close to about 28%, 29% kind of a percentage. What we have been able to take overall increases is in the zone of about 15% to 18% in various markets to that extent. And we have not been taken increases as we have done in the Indian market, which has grown to almost something like about 22% to 23% in terms of the overall increase, which is there. I would say that, yes, this kind of price inflation, which we have taken, I think it is for the first time in the history of Asian Paints, we would have taken this kind of increases to that extent. And it would be definitely something which has been one of the stronger price increases we have taken in the past.

My second and last question is on Waterproofing. What kind of price hikes have you taken there? And when you compare [indiscernible] which has had a huge head start, because there was there in that business [indiscernible] group. How do you compare yourself versus Pidilite currently? And longer term, would you look to dominate here at #1, the way you dominate paint?

So actually, what we see is that overall, Waterproofing, I think the pricing has been comparable to what we have taken the increases across all other products. There is nothing it is special about Waterproofing to that extent. It's in the same league as what we have taken for emulsions and other products to that extent. Going forward, see, Waterproofing is an integral part of our strategy, and we feel that it comes as a natural thing from a consumer's point of view, because the consumer earlier used to really blame the top coat, because of the fact that he sees any problem there. And therefore, we saw that waterproofing was a very big potential in terms of putting in place. Overall, as we see we have been growing, as I said, at a very, very strong rate over the last 7 years. And we see that the overall potential in terms of the overall waterproofing market is extremely high. And therefore, we really do not compare in terms of how are we doing with respect to some of the other players in the market. But what we know very clearly is that with the kind of range which we have, the kind of products which we have, and the kind of resources which we have put behind, I think we are growing much faster than the market than any other player, Indian or multinational.

[Operator Instructions] Our next question is from Mr. Avi Mehta, who has joined us in the room. So please unmute yourself, state your name and company name and ask your question.

This is Avi here from Macquarie. I just had 2 questions. Barring the short-term impact of this wave, would it be fair to expect that the sharp price increases taken would result in volume declining, because 3Q possibly didn't see the full impact of that 15% price hike?

I don't think so that would happen, because we've seen an early -- almost about a 10% increase, which we did it in November and still we saw very healthy growth, which we were able to achieve in November. And if I look at the second price increase, which we implemented, even the first fortnight of December was very, very good from the point of view of overall demand to that extent. It is only that in the second fortnight, we got hit with the third wave coming in. As I see it, the elasticity of paint from the point of view of pricing is pretty good. The only -- to some extent where it kind of starts making an impact is at the economy and to that extent where it can start hurting you a little to that extent going forward. However, we must remember that when you look at, there is a cost of painting, 60% to 70% cost is of labor. And the material cost is only about 30% to 40% to that extent. And therefore, even if there is a larger increase, if that gets nullified from the point of view of an overall increase, which you see in terms of prices to that extent when it translates into a per square feet price on a certain surface. So what we see going forward that, largely, I don't think so that we could kind of get impacted, especially the luxury premium space would be very strong to kind of happen. There could be a little bit of an impact at the economy end, but by and large, I think the volume growth should be healthy.

Okay. Perfect. I just wanted to kind of check on the price increases. What kind of crude price inflation is built into the price hikes taken till date? Would it be fair to say crude price till $80, $85, because that's what the level was, are already passed on, but further inflation would necessitate more price hikes?

So see, it is not directly correlated with just the crude prices, because a lot of products, which -- raw materials which go into paint are derivatives, which are there. So it's not a direct correlation that if the crude price goes up by $2 then there will be a correlation in terms of the price hike, we need to kind of take overall. So I think overall, we had taken a median in terms of about $80 to $82 kind of a range in terms of the crude prices going forward. And we think that it would really depend on certain crude derivatives in terms of how the price would translate in terms of those ones. As we see right now, the inflationary percentages might not be very, very high as we kind of look at the quarter 4 to that extent, but we'll have to kind of wait and watch. In case, obviously, I think the inflation goes very, very high, we will have to take a call in terms of what to kind of do, but there is no direct correlation, which you can put to crude prices in terms of there and what increases we need to kind of take.

Our next question is from Mr. Manoj Menon, who has joined the press con zone.

This is Manoj Menon from ICICI Securities, which is ISec. The first thing, I just wanted to understand if it is possible for you to help us, is that the -- in the overall volume revenue growth, which Asian Paints disclosed every quarter, would you be able to help us understand what is actually paints and what is the, let's say, the non-paint contribution, let's say, over the now last 3, 5 years, et cetera? So let's say, for -- the reason I'm asking you, because when I compare and as an analyst Asian Paints' performance with the other paint companies, it does appear that Asian has done a far, far better execution for either strategization execution when it comes to non-paints portfolio. So it will be very helpful if you could quantify, let's say, what is the non-paint contribution to your overall portfolio today.

So overall, if you look at from a point of view of non-paint kind of a sale, today, we account for everything, which is happening in terms of whether it is waterproofing, putty, or whatever, that's part of the paint sales as well to that extent. It's only the area which is the Kitchen, the Bath business, and the other areas of Home Decor, which we see are basically part of the non-paint, which kind of really qualify under that category to that extent. And that part is not a very, very big part of the overall business. You've just seen that I spoke of Kitchen and Bath business crossing about INR 100 crores in each of the quarters to that extent, which is there. Plus, the fact that today, there are other home decor areas like furniture, furnishing, fabrics in terms of what we deal with. So if you look at from a point of view of an overall percentage to the overall coatings business, the non-paint would not form a very major part of it. So the larger performance, you can take it as largely on the paint performance what you see.

Amit, I truly appreciate that comment, but maybe I'm happy to kind of connect one-on-one on this, but is it even actually fair to call waterproofing as part of paints actually? Because paints is supposed to be delivering a different functionality. Let's say, versus the waterproofing where the consumer understanding that it is meant for the roof, but whereas, let's say, waterproofing, which is meant for the wall, is like obviously should classify in a different classification. So what I'm trying to understand is that, I think you have done a very good job in terms of [indiscernible] but it appears that you are very reluctant to acknowledge the good work which you have done, actually in terms of the non-paints diversification.

No, no. We will take the credit of doing good work all across and not look at only one category in terms of doing good work there. But principally, I disagree with you because, see, if you look at -- and that's what I emphasized the point that waterproofing is an integral part of painting. Just like you put a primer and putty today, waterproofing is put to kind of take care of any seepage which happens on the wall or any damp walls, which are there to that extent. So I think the way we are pitching to all the -- our retailers, to painters, to contractors, is the fact that today, you can't see waterproofing separate to painting to that extent. And that, I think, has been the larger story, which we have been taking. Unless your waterproofing is going on a very, very specific specialized purpose of saying you are looking at a swimming pool, where you are looking at applying waterproofing there to that extent for a special delivery to that extent. But in our business, the larger zone, which we are looking at is, that how it is integrated with paint going forward. And as I said, that is why we don't want to really compare with any other company in terms of what is there, because they might be talking of waterproofing as a totally separate business in terms of how they see it. In our business, it is very well integrated into the main streamline.

Understood. That I think probably is the achievement of which paint companies like you and some of your peers would have managed in the last 2, 3 years. I get that. Sir, the second question here is when I take a step back and think about the assumption 15 to 18 months back versus, let's say, what realistically transpired and actually happened in the market. That -- when I go back to April, May, June of 2020, the assumption or the expectation was that, oh, no, -- I mean consumers are very worried and kind of they wouldn't really want painters to come into your home and -- because you are worried about COVID, et cetera. Versus the reality was that it appears that yours is one of those industries where would actually got benefited from. Let's say, whether it is the consumer, let's say, you are spending more time at home. It kind of completely turned on its head from versus expectation. Second aspect here is also that possibly rental people moved to villages and kind of let's say you had more rental apartments available in urban areas and vice versa, et cetera. Just trying to understand that in your opinion, just for a minute, you leave the hat of the CEO and just let's say, put the hat of a marketing manager. In your scientific observation what you've seen in the last 18 months, is there any significant noise in the last 18 months of performance at an industry level, including you as the market leader?

No. As I see it, overall, as I said earlier, that there are 2 larger components of painting. One is the repainting segment, which is there. The other is the new construction segment, which is there to that extent. What we saw very clearly in the year 1 was that the repainting, which is there, only got deferred when there was COVID to that extent. And therefore, we always kept on referring to a pent-up demand, which kept on happening whenever the market really opened for us to that extent. So the repainting market in a nutshell never got affected to that extent. It only got deferred to another quarter or to another 2 quarters to that extent in terms of what is there. The fresh construction is where it got impacted far more strongly for the industry as a whole. Because it is not very easy that if you have started the construction of a building that you can stop and kind of start it very easily, because there is labor, there is other infrastructure, which kind of comes into place to that extent. So what I've seen year 1, which is the last year, the construction business got affected in a very big way, and that is why some of the Projects areas got affected in a very, very strong manner to that extent, which is there. But coming into this year, we have seen impetus in terms of both the businesses. Apart from the month of May, which kind of created that COVID crisis, which was there, we saw definitely the pent-up demand happening in June, July and August to that extent, which is there. And also, we have seen a very strong demand coming from the real estate, construction, infra business this year, which has basically accelerated the projects in the institutional business.

I'm sorry, sir, just to push the envelope on this actually. Basically, what I'm trying to understand is in the last 18 months, let's say, since March 2020 or rather 2020, 21 months since March 2020, did the industry benefit from any one-off noise about, let's say, people in urban moving to rural, which means you have more, let's say, apartments available in urban for rental or let's say, if I XYZ went from urban to rural, you said, okay, let me paint my rural home as well. So what I am trying to understand is that are there any, in your opinion, as a CEO, marketing manager that look, are there any noise one-off in the last 18 months of demand trends, which you have seen?

Okay. Quickly, just to tell you that, see, I don't think so that has got really too much impact overall, because, in fact, with a lot of metro homes going down, the rental homes basically, repainting came down to some extent. On the other side, the second homes market kind of increased, because a lot of people were purchasing second homes and so on and so forth to that extent. At the same time, a lot of people started focusing on their homes, which they were staying in to that extent, because the stayed in the home for a very long time. They started basically painting more in the home and the frequency of possibly the painting cycle increased to that extent. So I would say it was overall, just a shift of the demand to that extent. I didn't see that anything which has really contributed in terms of the industry increasing a lot, just because of any of these demographic changes taking place.

Understood, sir. So just to clarify...

I'm really sorry to interrupt you. We have many questions in queue. So we'll have to move on to the next one, really sorry for that. The next question is from Mr. Tejash Shah. He's joined us on a Zoom platform. Sir, please state your name and company name, and ask your question.

This is Tejash Shah from Spark Capital. Thanks for a very detailed presentation. So I'm not left with much questions on the decorative part of the core business, but except one that you spoke about Project business today and now Project business is coming out of slumber after a long. And we did well in the quarter materially versus the other part of the business you called out in the opening remarks also. So I just wanted to understand that how is the growth runway looking here, because it is after almost 7, 8 years, we are seeing the cycle reviving, a? And 6, 7 years back, we vaguely used to say that the mix of fresh painting versus repainting is 75-25. And I believe in the last few years, that number would have moved in favor of repainting materially. So where it stands today? And how do you see it panning out in this cycle, let's say, next 2, 3 years?

So I would say that structurally, we still kind of talk of the new construction to be still around about 30% and today, the repainting to be about 70% kind of a zone. Because what we've also seen is that in the -- while there is a pickup, which is there, both from the point of view of builders coming into this space, we also see a lot of action happening at the factories, the institutions and so on and so forth. But more importantly, I think government spending has really gone up in the last 2 years to that extent. So government is a very strong space in terms of where we have seen a lot of kind of spending, which is happening from a Projects institutional space. For us, that segment has also gone up, because of the Waterproofing coming in to that extent. Because Waterproofing becomes an integral part to start the foundation in terms of what is there and then basically gets into the whole painting cycle after that to that extent. So overall, I would say that the percentages would be like 70-30. And my take is that going forward, I think we will see a lot of CapEx, which would happen from a point of view of the budget, which is coming on infrastructure going forward to that extent. And therefore, I would say that the fresh construction, I think, as an activity would continue in the coming 2 years very, very strongly in terms of both government spending, as well as the private lobbies coming in terms of spending on the housing segment.

Just 1 clarification on that. So waterproofing in construction project or government projects will be part of Asian PPG or it will be part of Asian Decorator?

No, the entire Projects business also is part of the Asian Paints only to that extent. Where Asian PPG comes in, that they look at supplying to OE businesses like the auto and so on and so forth. And the General Industrial business basically would -- basically give larger things to factories, for chimneys, for maintenance and so on and so forth to that extent, which are all basically, as we call as the protective coatings and the powder coatings to that extent. But the Projects business, which I just spoke of, which is the builders and which is the cooperative housing societies and some of the government projects, which are coming up or the hotels or the institutions, all will come under the Asian Paints business.

Sure. That clarifies. And sir, second question is also the last few quarters, the most exciting part of your presentation has been the vision that you have shared on from share of walls to share of space. Now if you can share some operational insights on the Decor business, how does customer discover us? What's the material sourcing arrangement? And how the fulfillment happens on that whole line of business?

Okay. So there are 2, 3 things. One is, obviously, the physical brick-and-mortar model in terms of what we follow. So we have stand-alone Kitchen and Bath stores, which are there across the country, which where we are able to kind of push the Home Decor items through those to that extent. We have started with this whole vision of something called the beautifulhomes.com, which is a central engine where the customer comes in looking at inspirations of home decor and so on and so forth. We are able to kind of then generate a lot of digital leads, which kind of come in from there, where people are seeking home decor in a very big way. And then we kind of direct them to 2 areas. One is we have got a Beautiful Home Service, which provides basically them a full experience sitting at home of redecorating their homes or renovating their homes. In addition, we have now 29 Beautiful Home stores, which are there, which is decor under one roof. So we will guide a lot of those people, who are coming on to our central engine, beautifulhomes.com in terms of going into those stores, and really kind of getting their home decor requirements from there. In addition, these stores will get basically walk-ins, which are happening, because they are related. They are in a high retail street market to that extent, so on and so forth. So I think the whole model, which works in is from the point of view is that there is a digital engine, which is energizing the people on inspiration and visits. And then there is a brick-and-mortar model, which basically makes people experience things, see the physicality of it, experience it, and then kind of take those things home.

Our next question is from Mr. Jay Doshi. He's joined us on Zoom. Sir, please state your name and company name, and ask your question.

This is Jay Doshi from Kotak Securities. I have a couple of questions. The first one, you indicated significant progress on network expansion and called out 45,000 outlets being added over the past 7 quarters. Can you provide some more insights in terms of quality of these retail outlets that you added? What is the tinting machine penetration in these outlets? Or over the last 7 quarters, how many tinting machines have you seeded? And where is your overall network count today in terms of dealer count?

So see, overall, if you look at -- when I -- when we speak of this 45,000 retail touch points, we speak of the overall ingress, which we are making with respect to, one, putting our tinting machines there to that extent. We are also now working with respect to certain distributors in terms of reaching out to smaller players where we want to increase our reach in terms of smaller towns and so on and so forth, which is there as a model in terms of what we are taking to that extent. And therefore, it involves all kinds of retailers coming on to the picture. There could be retailers who are dealing in electricals. There could be retailers who are kind of dealing in cement and steel, and so on and so forth. So it kind of includes the whole plethora of people who come on to the board to that extent. In terms of overall tinting machines, I think the ingress has been very, very strong in terms of what is there, because literally, now it has become like a hygiene, because where a retailer cannot operate without the tinting machine not being there with him to that extent. And therefore, what we see is that that's the overall zone, which we are looking where possibly we speak of today, retail touch points, which are almost about -- more than about 1.4 lakh overall to that extent. But not necessarily every one of these would be a direct retailer to that extent and nor everyone would have a tinting machine in terms of which is there to that extent. But overall, that's the kind of touch points, which we are talking in terms of going forward. And gradually, what we see is that as these retailers mature, they will eventually take a tinting machine and go forward to that extent. So that gives you an indication in terms of how the numbers kind of look for future.

But have you seen -- just a follow-up, have you seen -- have you increased your tinting machine penetration or seeding per year or per quarter significantly versus the previous run rate?

So we see that, that is the overall focus, which we have been maintaining for the last 4, 5 years. Yes, if you compare from what we have done possibly a decade back, the run rate would have kind of gone up to that extent. But that is, I think, inherent part of our strategy that we kind of keep on looking at putting more and more machines, as I said, in newer towns, suburbs, newer cities and so on and so forth as we kind of go forward.

Sure. And the second quick question is you called out that you're targeting 7% to 8% revenues from Services and 8% to 10% from Home Decor. So what is the time frame that you were referring to? And in Services revenue, typically for a paint project, Services is 2/3 of the sales. So what does this mean in terms of revenue accounting, does it mean that when you indicate 7% to 8% of your revenue should be Services, does it mean 3% or 4% of your Projects or overall paint business will be through your Services?

So what it is that, first of all, I think we are saying that by definitely in the 2 to 3 years, we will kind of get into this number percentage contributions in terms of what we are speaking of. So specifically, I think by March of 2025, we are definitely looking at this kind of contributions coming. In case of Services, what happens we talk of the GMV, which is the gross merchandise value overall. So therefore, to that extent, it is a combination of the material plus labor in terms of what really kind of plays in. Whereas from the point of view of decor also, it kind of varies that in some cases, it would be only the material, which would be there. In some cases, it would be a question of labor plus material coming into the play to that extent. But what we are definitely saying is that, that is -- if we look at the overall GMV, they will start contributing to those kind of percentages in terms of the overall business.

Just so that I understood correctly, 17% to 18% of your revenues will come from Home Decor and Services in the next -- by March 2025. And that number would be less than 3%, 4% today?

So today, you can't take it at 17% straightway, because, as I said, there is a gross merchandise value, which is there. So if you look at it from the point of view, you will have to break it up from the point of your material plus labor to that extent. So there will be percentage possibly lower than that in terms of what we are talking. That is point 1 to that extent. And secondly, today -- yes, today that number definitely is in the region of about 5% to 6%.

Moving on to the next question. We have Mr. Shirish Pardeshi who joined us on Zoom. So please state your name and company name, and ask your question.

I really appreciate the comments what you have passed on before. I think the volume growth momentum is very, very strong. Just one quick question. I think not per se the rural, but the fantastic work what you have been harping on saying that Tier 2, Tier 3 market, and how you are exploring the distributor-led model. What is it that the merit it can go up to? And this is a continuous journey, which I can understand. But obviously, there is some level in your understanding that you have been trying a new format. But what is the merit and this kind of growth, how long it will continue? I mean, demand conditions are very good, but the channels and formats which you are losing will have some limitations at some point of time.

I would not agree to that, because I see that we are a consumption market in India. We are also a growing market to that extent. I think the GDP projections, which are there are not the projections that are coming down substantially as compared to what we look at the Western markets to that extent. I would say that if GDP is remaining in the healthy zone of anywhere between 6% to 8% kind of a zone for our country going forward, I don't see that growth would be a problem to kind of come in. What we also significantly see is that today, when you go into T3, T4 cities, I think the consumption is kind of going up. The decor levels are going up to that extent. The purchasing capacity is going up to that extent. And therefore, what we see is that the potential, which kind of some of the rural geographies kind of give you is very, very strong. And therefore, we think that the expansion process will continue. Today, as the towns get populated more and more, you kind of look at 2 or 3 outlets coming in. When they get populated more and they expand, the outlets go to 10 or so to that extent in terms of that place. So what we see is that it's a continuous process, and I don't see that there is any stoppage to this, if I look at it from the point of view or even from the point of view of next 20 years or so.

My next and last question is on, obviously, the margin. You did mention that this kind of price increases has never happened in the history of paint industry or any of the industry. But this suspicion that if the way inflation is looking at, and you yourself said that the derivative -- crude derivatives will have a lag. And if I assume that, hypothetically, if the inflation is still hitting on, would you have a confidence today saying that in the way you want to protect the margin further, you will still exercise or the management is of the view that we will still be able to pass on some more price increases to the trade or whatever has happened is the cap?

See, I think it is always a very, very dynamic situation in terms of what you play out to. Now if you look at it in the last 6 months, we did not take such a heavy increase, because we were trying to balance the whole area of consumer demand, the consumer sentiment, because we were going through a far more stronger COVID period where anyway, the demand conditions were not looking very good to that extent. I think we would always kind of balance the fact that when we kind of go ahead and if there are inflation, what is the part which you can absorb, what is the part you can pass on. I think these are dynamic questions, we take a call as we kind of go ahead. We would like to respect the consumer sentiment and look at in terms of not upsetting that. At the same time, we would not like to kind of take and say that the profitable growth component kind of goes out of the story to that extent. So I would say that we would take a very, very balanced opinion in terms of going forward, in terms of balancing demand versus the price pass on, which we kind of do as we go ahead.

Just one quick follow-up.

We have a lot of questions. Sir, the next question is from Percy. He's joined us on Zoom. So please state your name and company name, and ask your question.

Yes. This is Percy Panthaki from IIFL Securities. Just wanted to check some information, which was discussed earlier, whether I got it right. So basically, you said that the repainting constitutes 30% of sales now, which was a couple of years earlier, pre-pandemic.

No. No. The other way around. It's -- repainting is about 70% definitely.

Correct. So repainting is 70 and pre-pandemic, it was 75%. Is that correct?

Very difficult to really assess that it was exactly by that percentage, because no one measures it that strongly to that extent. So you could take a band that it has remained in that band over a period of time.

Okay. What I'm trying to understand, Amit, is you mentioned that real estate revival is one of the things which is sort of benefiting the top line. So I just wanted to get a sense of how much that benefit would be. So let's say, if the real estate cycle had not revived and it had remained as sluggish as it was 2, 3 years ago, then the sales growth of 28% you have done, that would have been how much lower is what I'm trying to understand.

I think if you get into that kind of a micro analysis, it is very difficult to kind of say whether it would have taken 2 percentage off the volume growth or it would have taken 3 percentage off the value growth to that extent. I don't think so it works like that to kind of micromanage it like this, because as far as even the construction segment is concerned, the growth kind of vary. It is never dead to that extent. So it might basically -- if it is growing at possibly 30%, it might come down to 20% or 15%, because some projects will keep on going, some government spending will keep on happening, some hotels will keep on coming in the environment and so on and so forth to that extent. So I think to that extent, depending on what is there, you could just say that maximum, it could be 2, 3, 4 points here and there, which you could kind of really see in terms of the market can behave to that extent. But I don't think so that it would kind of do a very big major indent in terms of bringing it down by 50% or so.

Understood. That helps. Secondly, I just wanted to understand, based on your input cost scenario. You mentioned that margins in Q4 should be better, because part of the price increases will filter through in Q4 only. But wouldn't the same hold true for input cost inflation as well that Q4 versus Q3 on a sequential basis, don't you see input cost inflation still being positive?

No. See, if you look at the quantum of the price increases, which we have taken in November and December, they are pretty substantial and we would not have realized it over the full quarter period to that extent. So what I meant was that this whole price increase of close to about 15%, the full thing would kind of take shape in quarter 4. And whereas the inflation which we see over Q4 to Q3 would not be of that kind of dimension to that extent, and it would be possibly much milder as we kind of go and see. So therefore, I think a larger impact in terms of profitability will definitely come in Q4.

Understood. And my last question.

I'm sorry, we'll have to move to the last question anyway. We have one participant waiting. The last question in the interest of time is from Mr. Abhijeet Kundu. He's joined us on Zoom. Please state your name and company name, and ask your question.

This is Abhijeet Kundu from Antique. So you said that in the last few years, you have added about 45,000 touch points, which is broadly about 15,000 touch points. So when we compare it with your previous year, I mean the -- I mean, last 10, 15 years. Typically, it used to be in the range of 4,000, 5,000 per month -- sorry, per year. So now the addition has been quite substantial. So according to you how much would be the -- I know you can give a particular figure to that. But there would be a good amount of growth coming due to the -- I mean, outside addition side. One would be that and -- in terms of geography, which are geographies where -- because you have been very strong in south and west and followed by a -- I mean, there is a good amount of presence across geographies, but south and west have been very strong already. So all these incremental outlets that have been added, which are the geographies that have done well for you or have been -- you have seen major additions in [indiscernible].

Okay. See, when I speak of the number of outlets, as I said, these are outlets which are direct and some indirect outlets, which we were getting. And so there are outlets where you will open directly and there are outlets now, which we have started opening through distributors as well. So I think the combined impact of 45,000 what we spoke of is coming as a combination of both to that extent. And what are the things which you were kind of referring to earlier was more in terms of the direct outlets to that extent, which were coming in. So that's clarification number one. Second, when we look at the overall, I think all geographies have done extremely well for us. And we are seeing that the kind of double-digit growth, which we are seeing today across the country for several quarters now. These are kind of spread across all the divisions to that extent. And we would say that I think the impetus is coming from all the divisions across the country geographically very well. But I think if you were to kind of pick up, we have seen that the geographies which are there of North and Central and East have been possibly having far more outlets and far more listings, which are coming as compared to possibly relatively South and West.

And last one. In terms of your capacity, you still have fair capacity that can be added in your [indiscernible]. So when do you plan to add capacity there? Because you had -- I think the line is built, but you have to add proper capacity there?

Yes. So I think it will happen definitely. I think we will look at in the next 2, 3 years to kind of look at in terms of adding that capacity going forward. And the rate at which we are growing definitely, we will need that capacity.

And what would be the utilization level is currently?

It It is at about 70%, 75% level.

That was our last question. May I now request Mr. Amit Syngle to give his closing remarks?

So thank you all. I'm sure that there would have been many more questions and we could have carried on for the next hour as well. But I think it's been a pleasure interacting with all of you and it's great, I think, listening and answering to your queries. I look forward to meeting you and wish you a very, very safe next quarter. Thank you.